written by Jacob Hall

Congress passed and put into effect two new laws: the Protecting Americans from Tax Hikes Act of 2015 (PATH Act) and the Consolidated Appropriations Act 2015 (also known as fiscal year (FY) 2016 omnibus).  All taxpayers will be effected by the provisions in the new laws, however every taxpayer’s situation is different and some may benefit more than others.  It’s crucial to focus on the changes made by  the PATH Act and the FY 2016 omnibus.  The beginning of the year will serve as a great opportunity to review these new laws and the impact they might have on your tax strategy.

Tax Extenders

There are more than 50 extenders that have been continuously checked and are typically extended for one or two more years.  The PATH Act took a different path by extending some of the tax extenders permanently, while others still remain on a year-by-year basis.  Some of the permanent extenders include:

  • Reduced earnings threshold for additional child tax credit
  • Earned income credit modifications
  • Enhanced Code Section 179 expensing
  • Research tax credit
  • Teachers’ classroom expense deduction
  • State and local sales tax deduction
  • Tax-free distributions from IRAs for charitable purposes for individuals age 70 ½ and older
  • Treatment of certain dividends of regulated investment companies
  • RIC qualified investment entity treatment under FIRPTA
  • Military housing allowance exclusion for determining whether a tenant in certain countries is low income
  • Exclusion of 100 percent of gain on certain small business stock

Extenders through 2019:

The PATH Act also extends some of the tax extenders through the year 2019, including:

  • New Markets Tax Credit
  • Work Opportunity
  • Bonus Depreciation
  • Look-through treatment of payments between related controlled foreign corporations

Extenders through 2016:

The Path Act also extends some of the tax extenders through 2016, including:

  • Exclusion from gross income of discharges of acquisition indebtedness on principal residences
  • Mortgage insurance premiums treated as qualified residence interest
  • Deduction for qualified tuition and related expenses
  • 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
  • Increase in limit on cover over of rum excise taxes in Puerto Rico and the Virgin Islands

Energy Extenders

Included in the PATH Act are extensions of extenders that are meant to promote energy conservation and the development of non-fossil fuel energy sources.  These incentives include:

  • Credit for alternative fuel vehicle refueling property
  • Second generation biofuel producer credit
  • Biodiesel and renewable diesel incentives
  • Special allowance for second generation biofuel plant property
  • Energy efficient commercial buildings deduction
  • Credit for fuel cell vehicles

The FY 2016 omnibus provides incentives as well, including:

  • Extension of the wind production tax credit
  • Incentives for solar power

A Look Ahead

The passing of the PATH Act and the FY 2016 omnibus have several lawmakers predicting a comprehensive tax reform in the year 2016.  There are deals on the table regarding numerous tax reform proposals and overhauls to the individual and business taxation.

The PATH Act and the FY 2016 omnibus include other provisions not described here.  Please contact our office for more details about the PATH Act and the FY 2016 omnibus by calling (417) 881-0145.