Protecting Americans from Tax Hikes Act of 2015
A large number of expired tax provisions were extended—some permanently—under the Protecting Americans From Tax Hikes (PATH) Act of 2015 that the President signed into law today.
The bill gives both businesses and individuals reason to celebrate as it locks in dozens of popular tax incentives that were set to expire, reducing tax liability for many come April. While these provisions can produce significant savings, quick action (before Jan. 1, 2016) may be required for them to affect your 2015 tax return.
Note: There are many provisions in this act. Our goal is to not discuss all of the provisions but focus on the specific provisions that will be most beneficial to our clients.
Enhanced Section 179 Deductions
The Act retroactively extends and makes permanent the $500,000 expensing limitation for the cost of qualifying asset acquisitions, including purchases of computer software and air conditioning and heating units which qualify beginning in 2016. Once equipment purchases total $2 million, the allowed Section 179 amount will start to phase out dollar-for-dollar until a maximum of $2.5 million is reached. Both the $500,000 and $2 million limits are indexed for inflation. Beginning in 2016, the qualified real property limitation of $250,000 is also eliminated
Although extended through 2019, the 50% immediate expensing of asset acquisitions is on its way out. The percentage will stay at 50% for 2015 – 2017 before phasing down to 40% in 2018 and 30% in 2019, after which it will disappear completely. Beginning in 2016, bonus depreciation can be taken on qualified improvement property. The extension also allows taxpayers to continue to elect to accelerate the use of AMT credits in lieu of bonus depreciation.
Research and Development Credit
The popular tax incentive has been enhanced and made permanent. Beginning in 2016, small businesses can claim the credit against alternative minimum tax. In addition, certain small businesses will be able to offset payroll taxes with the credit.
Section 1202 Stock
Section 1202, which allows a taxpayer who sells certain small business stock to exclude part of the gain, was increased from 50% to 100%. This extension permanently includes the elimination of the gain as an alternative minimum tax preference.
Cadillac/Excise Tax Delayed
The Cadillac tax places a 40% excise tax on health plans valued at more than $10,200 for individual coverage and $27,500 for families. The bill delayed the provision, which is now scheduled to take effect Jan. 1, 2020 rather than 2018. In addition, the tax has been made deductible for employers who are required to pay it.
Additional business tax incentives:
- Permanent extension of the 15-year straight-line cost recovery for qualified leasehold improvements, qualified restaurant property and qualified retail improvement property.
- Permanent extension of the 5 year S Corporation recognition period for built-in gains following conversion from a C Corporation.
Additional individual tax incentives:
- Permanent extension of the tax-free distributions from individual retirement plans for charitable contributions (over age 70 ½, max $100,000).
- Discharge of qualified principal residence debt is extended through 2016.
Keep in mind that many tax incentives with more limited applicability have also been extended; it is possible some of them could also benefit you. In addition, many are subject to a variety of rules and limitations. Please contact your Aldrich Advisor to determine exactly how you can make the most of this tax relief.