Congress Passes Tax Extenders – New Bill Extends Tax Breaks

Late on December 15, an agreement was reached on tax extenders-i.e., the 50 or so temporary tax provisions that are routinely extended by Congress on a one- or two-year basis-and numerous other tax provisions in the “Protecting Americans from Tax Hikes (PATH) Act of 2015” (the Act). The Act retroactively extends a host of business and individual tax provisions, some of which are permanently extended, and others of which are extended through 2016 or 2019.

Highlights of the bill include the following:

• The research and development (R&D) credit
• Bonus depreciation of 50% for new assets
• Section 179 expense limits set back to $500,000
• Qualified leasehold, retail improvements and restaurant property

Business Tax Provisions

• Research Credit Permanently Extended and Made Creditable Against Other Taxes
• Enhanced depreciation (Section 179) made permanent ($500,000 expensing limitation and $2 million phase-out amounts).
• Bonus First-Year Depreciation extended through 2019.
• Enhanced First-Year Depreciation Cap for Autos and Trucks Extended Through 2019.
• 15-Year Write-off for Qualifies Leasehold and Retail Improvements and Restaurant Property Made Permanent.
• Choice to Forego Bonus Depreciation and Claim Credits Instead is extended.
• Alternative Fuel (non-hydrogen) Vehicle Refueling Credit Retroactively Extended.
• Exemption for Regulated Investment Companies (RIC) Interest-Related Dividends and Short-Term Capital Gains Dividends Permanently Extended.
• Treatment of RIC as Qualified Investment Entity Permanently Extended.
• Reduction in S Corp Recognition Period for Built-In Gains Tax Permanently Extended.
• Exclusion of 100% of Gain on Certain Small Business Stock Permanently Extended.
• Lower Shareholder Basis Adjustment for Charitable Contributions by S Corporations Permanently Extended.
• Special Rule for Payments to a Charity From a Controlled Entity Permanently Extended.
• Liberal Rule for Corporation Qualified Conservation Contributions Permanently Extended and Expanded.
• Enhanced Deduction for Food Inventory Permanently Extended and Expanded.
• Subpart F Exception for Active Financing Income Permanently Extended.
• Differential Wage Payment Credit for Employers Permanently Extended and Expanded.
• Work Opportunity Tax Credit Extended Through 2019 and Expanded.
• Look-Through Rule for Payments Between Related CFCs under Foreign Personal Holding Company Income Rules Extended Through 2019.
• New Markets Tax Credit Extended Through 2019.
• Indian Employment Credit Extended Through 2016.
• Domestic Production Activities Deduction Rules for Puerto Rico Extended Through 2016.
• Real Estate Investment Trusts (REITs) restriction on tax free spin-off’s.
• Qualified Zone Academy Bond Limitation Extended Through 2016.
• Empowerment Zone Tax Breaks Extended Through 2016.
• Second Generation Biofuel Credit Retroactively Extended.
• Biodiesel and Renewable Diesel Tax Credits Retroactively Extended.
• Biodiesel Excise Tax Credit Retroactively Extended.
• Production Credit for Indian Coal Facilities Retroactively Extended and Modified.
• Renewable Electricity Production Credit Extended.
• Expensing Election for Cost of Film and TV Production Extended Through 2016 and Expanded.
• Facility’s Construction Date Extended for Election to Take Credit Instead of Production Tax Credit.
• New Energy Efficient Home and Commercial Building Credit Extended.
• Deferral of Gain on Sales of Electric Transmission Property Retroactively Extended.
• Alternate Fuels and Mixtures Excise Tax Credit Extended.
• 7-Year Write-off for Motorsport Racing Track Facilities Extended Through 2016.

Miscellaneous Other Provisions Permanently Extended
The Act also retroactively and permanently extends:

• The low-income housing 9% credit rate freeze.
• A provision under which the basic housing allowance of a military member is excluded from income for purposes of determining the individual’s qualification as a “low-income tenant” for purposes of the low-income housing tax credit program.

Miscellaneous Other Provisions Extended Through 2016
The Act also retroactively extends the following through 2016:
The railroad track maintenance credit. For expenditures paid or incurred in tax years beginning after Dec. 31, 2015, the credit applies to expenditures for maintaining railroad track owned or leased as of Jan. 1, 2015 (rather than Jan. 1, 2005, as under prior law).

• The mine rescue team training credit.
• The increase to $13.25 (from $10.50) per gallon limit on cover over of rum excise taxes to Puerto Rico and the Virgin Islands.
• The possessions tax credit for American Samoa for two years through 2016.
• Classification of certain race horses as 3-year property, for horses placed in service before Jan. 1, 2017 (regardless of age when placed in service).
• Accelerated depreciation for business property on an Indian reservation, for property placed in service before Jan. 1, 2017. For tax years beginning after Dec. 31, 2015, taxpayers can make an irrevocable election out of these accelerated depreciation rules for any class of property.
• Election to treat 50% of the cost of any qualified mine safety equipment as an expense in the tax year in which the equipment is placed in service, for property placed in service before Jan. 1, 2017.

Individual Tax Provisions

• Enhanced Child Tax Credit Made Permanent.
• Enhanced American Opportunity Tax Credit Made Permanent.
• Enhanced Earned Income Tax Credit Made Permanent.
• Above-the-Line Deduction for Educator Expenses Made Permanent.
• Increase in Excluded Employer-Provided Mass Transit and Parking Benefits Made Permanent.
• Alternative Fuel (non-hydrogen) Vehicle Refueling Credit Retroactively Extended.
• Credit for Fuel Cell Vehicles Retroactively Extended.
• State and Local Sales Tax Deduction Made Permanent.
• Liberalized Rules for Qualified Conservation Contributions Made Permanent.
• Nontaxable IRA Transfers to Eligible Charities Made Permanent.
• Exclusion for Discharged Home Mortgage Debt Retroactively Extended Through 2016.
• Mortgage Insurance Premiums as Deductible Qualified Residence Interest Retroactively Extended Through 2016.
• Credit for 2-Wheeled Electric Plug-In Vehicles Retroactively Extended.
• Energy Efficient Property Credit Retroactively Extended and Modified.
• Above-the-Line Deduction for Higher Education Expenses Retroactively Extended Through 2016.

Please contact your accountant to find out how this newly passed legislation could benefit you.

Chris Powers, CPA, is an AEM Business Partner who specializes in helping businesses and nonprofits grow. You can reach Chris at 507.304.6828 or at christine.powers@aemcpas.com.