By: Kerri Tassin
Several tax provisions intended to benefit both individual and business taxpayers expired at the end of 2014. On December 18, 2015, President Obama signed into law the “Protecting Americans from Tax Hikes” (PATH) Act of 2015 (Public Law 114-113) that extended, modified, and even made permanent, many of the expired provisions. Our Bears Business Brief today takes a look at just a few of the provisions included in the new legislation.
The PATH Act includes some updates for individual taxpayers who itemize their deductions on Schedule A. The Act made the state and local sales tax election permanent. While this provision mainly benefits residents of states with no income tax, certain Missouri residents may also find it helpful to take advantage of this election. Also, taxpayers who pay mortgage insurance premiums may continue to deduct those premiums for tax years 2015 and 2016.
Individuals who pay qualifying education expenses may also benefit from other tax law changes included in the PATH Act. Of particular significance, the Act made the American Opportunity Tax Credit a permanent provision. Taxpayers in the first four years of post-secondary education may be able to take advantage of this credit. Congress also extended the “above the line” tuition and fees deduction through 2016.
Elementary and secondary educators may also benefit from the Act. In the past, educators could deduct up to $250 for the purchase of classroom supplies. The new law made the deduction permanent, and after 2015 the $250 amount will be indexed for inflation. In addition, professional development expenses will now qualify for purposes of the deduction.
Homeowners may be able to take advantage of a couple of other updated provisions. The PATH Act extended the nonbusiness energy property credit through 2016. Under the new rules, windows and doors must meet Version 6.0 of the Energy Star program requirements to qualify for the credit. Also, homeowners who have incurred qualifying mortgage forgiveness income may be able to exclude part or all of the debt discharge income through 2016.
The PATH Act also included some updates to a couple of provisions of particular interest to business owners. Under Code Section 179, business owners could elect to expense the cost of certain assets placed in service during the tax year instead of recovering the cost over time with depreciation expense deductions. In recent years, the Internal Revenue Code limited the amount that could be deducted in the tax year to $500,000, subject to a phase-out. The $500,000 limitation expired at the end of 2014 and reverted to $25,000. The PATH Act reinstated the $500,000 limit and now provides that the limit will be adjusted for inflation beginning in 2016.
In addition, the PATH Act generally extended bonus depreciation provisions for qualified property placed in service before January 1, 2020. While the rule allows 50% bonus depreciation for the year the property is placed in service, this percentage is now scheduled to phase down beginning with property placed in service during the calendar year 2018.
Taxpayers watched and waited throughout 2015 to see what would happen to many provisions that expired in 2014. Finally, late in December 2015 the President signed the PATH Act into law. In addition to the tax provisions discussed above, the PATH Act includes several other updates and modifications concerning charitable giving, real estate investments, and energy credits to name a few.
The material in this article is for informational purposes only and does not constitute written tax or legal advice. Please consult with your own tax advisor regarding your personal tax situation.
Assistant Professor Kerri L. Tassin, CPA, JD teaches tax accounting classes in the School of Accountancy at Missouri State University. She also serves as director of the MSU Public Service Tax Clinics.
This article appeared in the March 4th, 2016 edition of the News-Leader and can be accessed online here.