Wednesday, December 23, 2015

Protecting Americans from Tax Hikes Act of 2015 – aka Extender Bill

On December 18, 2015, President Obama signed into law HR 2029 which contains the Protecting Americans from Tax Hikes Act of 2015 (PATH).  The pdf version of this Act is 887 pages with PATH starting on page 797.  Some of the tax provisions were extended and some were made permanent.  Here are the highlights of PATH.
* Section 179 limit of $500,000 with a phaseout beginning at $2,000,000.  These amounts will also be indexed in $10,000 increments in future years.  For tax years beginning in calendar year 2015 the $250,000 limit remains in effect for qualified real estate.  For tax years beginning after 2015 qualified real estate could use the entire $500,000.  Also made permanent is the ability to claim 179 for qualified software and the ability to claim more or revoke a prior election.
Air conditioning and heating units are treated as eligible for Section 179 for property placed in service after December 31, 2015.
* 15-year depreciable life for qualified leasehold improvements, retail improvements, and restaurant property.
* Research Credit with some modifications
* S corporation Built-in Gains recognition period of five year
* Exclusion of 100% of gain on certain small business stock
* Lower S shareholder basis reduction for noncash charitable contributions
* Enhanced deduction for food inventory
* Employer Wage Credit for employees who are active duty members of the uniformed services
* Refundable part of the Child Tax Credit using the $3,000 wage base
* American Opportunity Credit
* Earned Income Credit (higher amount for third child and higher AGI phaseout level for married taxpayers filing jointly)
* Educator deduction ($250).  It is also now indexed for inflation in increments of $50 and has a modification for professional development for years beginning after December 31, 2015.
* Sales tax deduction
* Tax free distributions (direct transfer) from IRAs to charity
* Transit passes and parking benefits using an indexed base of $175 (instead of the former $100 base) to make permanent the matching of the higher levels of excluded benefits.
* Energy Credit (10%) for energy efficient items for the taxpayer’s principal residence (i.e., storm windows and doors, insulation, certain furnaces, etc.) with same limitations as previous (i.e., $500 lifetime limitations, etc.)
* Mortgage insurance premiums
* Cancellation of Indebtedness exclusion for qualified principal residence indebtedness of $2,000,000
* Tuition deduction
* Alternative Fuel Vehicle Recycling Property
* Two-Wheeled Electric Plug-in Vehicles (but not the 3-wheeled vehicles)
* Energy Efficient Home Credit (builder’s credit of $1,000 or $2,000)
* Energy Efficient Commercial Building Property Deduction under 179D
* Credit for Fuel Cell Vehicles
* Indian Employment Credit
* Domestic Productive Activities Deduction for Puerto Rico
* Empowerment Zone
* 179 expensing for Film and TV production expenses (and expanded)
* 7-year depreciable life for motorsports racing track facilities
* 3-year depreciable life for race horses
* Accelerated depreciation for business property on an Indian reservation
* Work Opportunity Tax Credit through 2019
* New Markets Tax Credit through 2019
* Bonus Depreciation at 50% for calendar years 2015-2017, 40% for calendar year 2018, and 30% for calendar year 2019.  The first year depreciation maximum for autos and trucks is again increased by $8,000 for calendar years 2015-2017, $6,400 for calendar year 2018, and $4,800 for calendar year 2019.  For plants planted or grafted after December 31, 2015 and before January 1, 2020, bonus depreciation is allowed for trees, vine, and plants bearing fruit or nuts when planted or grafted, instead of when they are placed in service.
* No refunds are to be issued before February 15th if the return contains EIC or refundable child tax credit effective for tax years beginning after December 31, 2016.  This is intended to give IRS more time to conduct fraud checks on the return before issuing a refund.
* Retroactive EIC, American Opportunity Credit, and refundable child tax credit.  In the past a taxpayer with an ITIN who later obtained a valid SSN was able to amend prior year returns to claim these credits.  This is no longer available for tax years beginning after December 31, 2014, if the SSN was obtained AFTER the due date for filing the original return.  There is an exception to this denial for a tax year beginning in 2015 as long as the original 2015 return was timely filed.
* Improper claims for EIC, American Opportunity Credit, and the refundable child tax credit will result in taxpayers being denied these items for a period of 10 years.
* Errors on information returns and payee statements.  If the amount of income is incorrect but the error does not exceed $100, the form does not need to be amended.  If the amount of federal income tax withholding is incorrect but the error does not exceed $25, the form does not need to be amended.
* The due date for sending Forms W3 and W2 to Social Security Administration and Forms 1099 to IRS showing nonemployee compensation is moved up to January 31st effective for calendar years beginning after December 31, 2015.
* The medical device excise tax is postponed until after December 31, 2017.
* The 40% tax on Cadillac plans is postponed for two years.
* Wind facility.  In the case of any facility using wind to produce electricity, the credit is phased out by 20% for tax years beginning after December 31, 2016; by 40% for tax years beginning after December 31, 2017; and 60% for tax years beginning after December 31, 2018, and before January 1, 2020.
* Solar energy property.  The credit is extended through years beginning prior to January 1, 2022, with some modifications and lower credit percentages.
* Forms 1098T will report the amount PAID for qualified tuition and related expenses paid after December 31, 2015, for education furnished after that date.
* Exclusion from income for civil damages, restitution, or other monetary award received by a wrongfully incarcerated individual.  This provision is available for any open year.  If a year is closed, it appears the taxpayer can still get a refund as long as the claim is filed no later than December 18, 2016 (one year from the date of enactment of this Act).
* Streamlined exemption process.  IRS is to provide a streamlined recognition process for organizations seeking tax exemption under section 501(c)(4).  Instead of the current process, these organizations must file a simple one-page notice of registration with IRS within 60 days of the organization’s formation.  Within 60 days after an application is submitted, IRS must provide a letter of acknowledgement of the registration, which the organization can use to demonstrate its exempt status.  Certain limitations apply.
* W-2s and SS numbers.  IRS has been given the authority to require employers to include an identifying number for each employee, rather than an employee’s SSN, on Forms W-2.
* Enrolled agent designation.  Allow enrolled agents approved by IRS to use the designation “enrolled agent”, “EA”, or “E.A.”.
Please see the Act for specific details on each of these provisions.

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