Tax Extender Items – Tax Year 2015
On December 18 2015, President Obama signed into law the Protecting Americans from Tax Hikes Act of 2015 [PATH Act]. The new law extends several tax provisions retroactive to the beginning of 2015, and makes some provisions permanent.
The following identifies some tax extender items that have been reinstated retroactive to January 1, 2015:
Additional Child Tax Credit – The refundable portion of the Child Tax Credit had an income threshold amount of $10,000. However, the extender legislation permanently sets the threshold at $3,000. Thus, families can receive a refund equal to 15% of their earnings above $3,000 up to the credit’s limit of $1,000 per child. This will allow for a higher credit for taxpayers who qualify.
American Opportunity Tax Credit [AOTC] – The AOTC has been made permanent. This comes as a sigh of relief to parents who are paying higher education costs because the credit was set to expire at the end of 2017. It’s also worth more than any other college related tax breaks, such as the lifetime learning credit & the tuition and fees deduction.
Earned Income Credit [EIC] – The EIC has also been made permanent. This too is a sigh of relief, not only to parents, but also to all taxpayers because the credit was also set to expire at the end of 2017. In addition, the credit amount was temporarily increased for taxpayers with three or more children and the AGI phase-out ranges have been increased for married taxpayers.
Charitable contributions of IRA distributions – A qualified charitable contribution (QCD) from an IRA is nontaxable if made directly to an eligible charitable organization. This lowers the taxpayer’s AGI, reducing the negative effect of AGI phase-outs. A QCD was dependent on extender legislation in prior years. However, it has now been made permanent.
Educator Expenses – The above the line adjustment for qualified expenses of elementary and secondary school teachers has been made permanent. The law also indexes the current expense cap of $250 for inflation beginning in 2016.
State & Local taxes – The provision allowing an itemized deduction for state & local general sales taxes instead of state & local income taxes on Schedule A, 1040 has been made permanent.
Qualified leasehold improvements, restaurant buildings and improvements, and retail buildings and improvements – the recovery periods for these assets were temporarily set at 15 years. They have now however been made permanent.
Section 179 expense – The section 179 expense limit of $500,000 and the investment limit of $2 million before any phase-outs were made permanent.
Special depreciation allowance – The provision extends the special depreciation allowance for property acquired and placed in service during 2015 through 2019. The special depreciation percentage is 50% for property placed in service during 2015, 2016, and 2017 and phases down to 40% in 2018 and 30% in 2019.
Discharge of principal residence indebtedness – The provision allowing exclusion from income for discharge of qualified principal residence indebtedness was extended through 2016.
Itemized deduction for mortgage insurance premiums – The provision allowing mortgage insurance premiums to be deducted as an itemized deduction on Schedule A, 1040 was extended through 2016.
Tuition & Fees deduction – The provision allowing an above-the-line deduction for tuition & fees paid for the taxpayer, spouse, or dependents was extended through 2016.
Non-business energy property – The credit for purchases of non-business energy property was extended through 2016.