Congress Finally Finds Its Path

December 23, 2015 | Volume 13, Issue 8 | 800.756.2772

Congress Finally Finds Its PATH

On December 18, President Obama signed into law The Protecting Americans from Tax Hikes (PATH) Act of 2015.  This legislation finally provides permanency to a substantial number of tax provisions that in the past had been extended by Congress only to expire in the next year. The PATH Act retroactively extended a number of key tax provisions that expired on December 31, 2014 and made over 20 provisions permanent.  

Some of the key provisions that have been made permanent are:

  • IRA Contributions to Charity: certain direct transfers to charity, in lieu of the required minimum distributions are allowed for individuals who are at least 70 ½ years old, up to $100,000.
  • Research and Development Credits:  in addition to renewing the credit for 2015, beginning in 2016 eligible small businesses (less than $50 million in gross receipts) may claim the credit against the Alternative Minimum Tax and eligible startup companies (those with less than $5 million in gross receipts and earning revenue for less than five years) may claim up to $250,000 of the credit against the employer’s FICA tax liability.    
  • Section 179 Depreciation:  the $500,000 expensing of certain assets has been made permanent, up to the $2 million phase out threshold.  Both these limits have been indexed for inflation beginning in 2016.  It also treats air conditioning and heating units placed in service after 2015 as eligible for expensing. Also, the treatment of certain real property as qualifying for this deduction, and removing the $250,000 cap, beginning in 2016, has been made permanent.
  • Exclusion of gain on Sale of Small Business Stock:  a 100% exclusion of gain is allowed for qualified small business stock and meeting the 5 year holding period.  In addition, the preference for AMT is eliminated.
  • Reduced S Corporation Built-in-Gain Period:  Reduction in the S corporation recognition period for built-in-gains from 10 to 5 years, following conversion from a C corporation.
  • Cost Recovery Methods: The PATH Act retroactively extends and makes permanent the 15-year cost recovery period for qualified leasehold improvements, retail improvements and qualified restaurant property.
  • State and Local Tax Deduction:  The Path Act makes permanent the state and local sales tax deduction in lieu of the state and local income taxes.

Provisions extended but not made permanent:

  • Extended through 2016, is the relief on the exclusion on Cancellation of Debt on principal residences.
  • Extended through 2019, is the Bonus Depreciation on Assets, which provides for a 50% deduction for the first year the property is placed in service. The percentage phases down to 40% for property placed in service in 2018, and 30% for property placed in service in 2019. Bonus depreciation will now be allowed for qualified improvement property.  
  • Renewed for 2015 and extended to 2016 the Section 179D Energy Tax Deduction for Building Envelope Efficiency Program.

The above are just brief samples of the tax changes under the PATH Act of 2015.  For additional details and to learn more about how the PATH Act of 2015 applies to your tax situation, please contact your RINA representative.