Change is something few of us are comfortable with. Fortunately, this year’s tax legislation, the Protecting Americans from Tax Hikes Act of 2015, otherwise known as the PATH Act, focused less on change and more on extending provisions or making them a permanent part of the tax code.
While the PATH Act affected or implemented several tax breaks, here are a few that will be the most pertinent to individuals and business owners:
What has become permanent?
For individual taxpayers, a previously expired and extended provision that had allowed for an itemized deduction for state and local general sales taxes instead of state and local income taxes was made permanent under the PATH Act.
The American Opportunity Tax Credit, which extended the credit for college education expenses established by the Hope Credit, was also indefinitely added to the tax code.
Charitable contributions to qualifying organizations from IRA accounts were made permanently nontaxable. Donors ages 70 1/2 or older can transfer up to $100,000 directly from their IRA and not have to pay income tax on the donation.
For businesses, several significant tax provisions were made permanent including the Research & Development credit and the Section 179 deduction, which allows companies to write off the cost of financed or leased equipment and off-the-shelf software. The expense limit for Section 179 was permanently set to $500,000 with a $2 million overall limit prior to phase outs.
The R&D credit was further enhanced through an increase to the alternative simplified credit from 14 percent to 20 percent.
Additionally,the PATH Act made permanent the exclusion of 100 percent of gains on certain small business stock. Non-corporate taxpayers holding small business stock for more than five years will be able to exclude any gains from the sale of those shares. The legislation also made permanent the reduced 5-year built-in-gains period for C corporations electing S corporation status.
Other incentives now firmly written into the tax code include a 15-year straight-line recovery for qualified leasehold improvements, restaurant property and retail improvements. There is also now a permanent allowance for basis adjustments in stock of S corporations when contributing property to charity.
What remains unchanged?
Many provisions from the 2014 tax season will remain in effect for the 2015 tax season but have not been made permanent.
Provisions affecting individual taxpayers include the tuition deduction for qualified education expenses, the deduction for mortgage insurance premiums for qualified residences and the mortgage debt exclusion for cancellation of mortgage debt on a principal residence valued up to $2 million.
Several business incentives were extended for five years. The bonus depreciation has been extended at 50 percent for the years 2015-2017, 40 percent for 2018 and 30 percent for 2019. However, the PATH Act does essentially phase out bonus depreciation over the next five years.
The Work Opportunity Tax Credit, which benefits employers who hire from certain targeted groups of potential employees, has been extended for the next five years. Similarly, the act allowed for the allocation of $3.5 billion of New Markets Tax Credit for each of the next five tax years. The PATH Act also extends the Look-Through treatment for certain payments between related CFCs through 2019.
The empowerment zone incentives and the film and television expensing options have also been extended for two years.
Notable Changes
The excise tax on high-dollar health care plans has been delayed for two years. There is also a one year moratorium on the Affordable Care Act’s health insurance provider fees.
“The American Opportunity Tax Credit, which helps cover college education expenses, was made permanent.”
“Many provisions from the 2014 tax season will remain in effect for the 2015 tax season.”