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Protecting Americans from Tax Hikes Act of 2015

Last month, the Protecting Americans from Tax Hikes Act of 2015 became a law on December 18, 2015.  The law provides a (i) permanent extension of various tax provisions, including the research tax credit, enhanced Sec 179 expensing, and the American Opportunity Tax Credit, (ii) five-year extension of bonus depreciation through 2019, and (iii) two-year extension for Sec 108 exclusion and mortgage insurance premium deduction, among others.

The following is a list of affected tax provisions for individuals and businesses.  Please refer to the table attached for the general effective dates for tax provisions added, amended or repealed by the law.

  1. Extenders for Individuals
    1. Permanent Extensions
      1. Charitable distributions from IRAs – The law permanently allows for individuals age 70 ½ and older to direct up to $100,000 from individual retirement accounts to a qualified charitable organization and exclude this amount from gross income.  Any amount distributed to a qualified charitable organization goes to satisfy your required minimum distribution.
      2. Enhanced American Opportunity Tax Credit (AOTC) – This enhanced version of the Hope Scholarship Credit is available at an increased level of $2,500, with adjusted gross income (AGI) phase-out amounts to $80,000 (single) and $160,000 (married filing jointly).
      3. Qualified Conservation Contributions – The law permanently allows conservation easement deduction up to 50% of AGI.
      4. Transit Benefits Parity – The law permanently extends parity among transit benefits, such as van pool benefits, transit passes and qualified parking.
      5. State and Local Sales Tax Deduction – The law permanently allows the election to claim an itemized deduction for state and local general sales taxes, in lieu of deducting state and local income taxes .
      6. The child tax credit, available up to $1,000 for qualifying dependents under age 17, may be refundable to the extent of 15 percent of the taxpayer’s earned income in excess of $3,000.
      7. Enhanced Earned Income Tax Credit – The law makes permanent the increase ($5,000) in phase-out amount for joint filers.
      8. Teachers’ Classroom Expense Deduction – The law permanently extends the above-the-line deduction for elementary and secondary–school teachers’ classroom expenses.
    2. Two-Year Extensions for Individuals
      1. Mortgage Debt Exclusion – The law excludes from income the cancellation of mortgage debt on a principal residence of up to $2 million ($1 million for a married taxpayer filing a separate return) through 2016.
      2. Mortgage Insurance Premium Deduction – This measure treats mortgage insurance premiums as deductible interest that is qualified residence interest subject to adjusted gross income phase-out.
      3. Qualified Tuition/Related-Expenses Deduction – The law extends the above-the-line deduction for qualified tuition and fees for post-secondary education.
      4. Residential Energy Property Credit – The law extends the residential energy property credit, i.e. 10% of qualifying property expenditure for adding insulation, energy efficient exterior windows and energy efficient heating and air conditioning systems.
    3. Miscellaneous Provisions
      1. Improvements to Sec 529 Plan – The purchase of computer equipment and technology with a distribution from a Code Sec. 529 plan is permanently considered a qualified expense.
      2. ABLE program – The law removes the prior law requirement that ABLE accounts may be established only in the state of residence of the ABLE account owner
  2. Extenders for Businesses
    1. Permanent Extension
      1. Research Credit – The law permanently extends the R&D credit. Additionally, effective for 1/1/2016, qualifying small businesses (average $50 million or less in gross receipt for the most recent three years) may claim the credit against AMT liability and the credit can be utilized by certain small businesses ($5 million or less in gross receipt) against the employer’s 6.2% payroll tax liability, up to $250,000 per year.
      2. Sec 179 Expensing – The new law permanently sets the Code Sec. 179 expensing limit at $500,000 with a $2 million overall investment limit before phase out (both amounts indexed for inflation beginning in 2016). Also made permanent is the special rule allowing off-the-shelf computer software to be treated as Code Sec. 179 property and the ability of a taxpayer to revoke a Sec. 179 election without IRS consent.
      3. 15-year straight-line cost recovery is allowed for qualified leasehold improvements, restaurant property and retail improvements, rather than 39-year cost recovery.
      4. 100-Percent Gain Exclusion on Qualified Small Business Stock – The 100-percent exclusion allowed for gain on the sale or exchange of qualified small business stock ($50 million or less in aggregated gross assets) held for more than five years by non-corporate taxpayers is made permanent.
      5. Reduced Recognition period for S corp Built-in Gains tax – The law reduced the recognition period in which S corp may be subject to built-in gains tax from 10 years to 5 years.
      6. Various others: Employer wage credit for employees who are active duty members of the uniformed services, treatment of certain dividends of Regulated Investment companies, Subpart F exception for active financing income, minimum low-income housing tax credit for non-federally subsidized buildings, military housing allowance exclusion for determining a low-income tenant, RIC Qualified Investment entity treatment under FIRPTA, charitable deduction for contributions of food inventory, tax treatment of certain payments to controlling exempt organizations, basis adjustment in stock when an S corporation makes charitable contributions of property.
    2. Five-Year Extensions for businesses
      1. Bonus Depreciation – The law extends bonus depreciation (additional first-year depreciation) under a phase-down schedule through 2019: at 50 percent for 2015-2017; at 40 percent in 2018; and at 30 percent in 2019. It also continues the election to accelerate the use of AMT credits in lieu of bonus depreciation and increases the amount of unused AMT credits that may be claimed in lieu of bonus depreciation. Additionally, the law modifies bonus depreciation to include qualified improvement property, and permits certain trees, vines and plants bearing fruits or nuts to be eligible for bonus depreciation when planted or grafted. Certain longer-lived and transportation property may qualify for an additional one-year placed in service date. Also, related bonus depreciation is increased by $8,000, unadjusted for inflation, in computing the first-year depreciation for passenger autos. Unlike Code Sec. 179 expensing (above), only new property is eligible for bonus depreciation.
      2. The law also extended the New Markets Tax credit and Work Opportunity Tax credit
      3. Look-through treatment for CFCs – The law extends the look-through treatment for payments of dividends, interest, rents, and royalties between related controlled foreign corporations under the foreign personal holding company rules.
    3. Two-Year Extensions for Businesses
      1. Extension of credit for energy-efficient new homes – The provision extends through 2016 the tax credit for manufacturers of energy-efficient residential homes. An eligible contractor may claim a tax credit of $1,000 or $2,000 for the construction or manufacture of a new energy efficient home that meets qualifying criteria.
      2. Extension of energy efficient commercial buildings deduction – The law extends the above-the-line deduction for energy efficiency improvements to lighting, heating, cooling, ventilation, and hot water systems of commercial buildings.
      3. In addition, the law extended the following tax provisions until the end of 2016: Indian employment tax credit, railroad track maintenance credit, mine rescue team training credit, qualified zone academy bonds, three-year recovery period for certain race horses, seven-year recovery period for motorsports entertainment complexes, accelerated depreciation for business property on an Indian Reservation, election to expense mine safety equipment, special expensing rules for certain film and television productions and live theatrical productions, IRC Sec. 199 deduction for Puerto Rico, empowerment zone tax incentives, economic development credit for American Samoa and moratorium on medical device excise tax.
      4. Also, the following energy credit provisions are extended: credit for alternative fuel refueling property, Credit for 2-wheel plug-in electric vehicles, second generation biofuel producer credit, biodiesel and renewable diesel incentives, production credit for Indian coal facilities, credits with respect to facilities producing energy from certain renewable resources, Special allowance for second generation biofuel plant property, special rules for sales/dispositions to implement FERC, excise credits for alternative fuels, credit for new qualified fuel cell motor vehicles

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