written by Ian Hall
Due to its new limitations and tax-breaks, the passing of Protecting Americans from Tax Hikes Act of 2015 (PATH Act), signed into law on December 18, 2015, was a major headline for 2015. While most of these tax extenders were made retroactive to January 1, 2015, valuable enhancements to some of these tax benefits were not made retroactive.
Rather, these enhancements were made effective only starting January 1, 2016. Individuals and businesses alike should treat these enhancements as brand new tax breaks and should consider speaking to their tax planner as to whether any or all of the extenders will apply to them. Here’s a list to consider as 2016 tax planning gets underway now that tax-filing season has ended:
Section 179 Expenses
The PATH Act permanently extended the Code Section 179 dollar of investment restrictions at the higher $500,000 and $2 million levels, which are adjusted for inflation for tax years beginning after 2015 (it is $500,000 and $2,010,000 for 2016). The $250,000 limitation on the amount of Code Section 179 property that can be attributable to qualified real property has been abolished. As well as the aforementioned breaks, heating and air conditioning units can now be included as Section 179 expenses.
Section 168(k) Bonus Depreciation
The PATH Act extended Code Section 168(k) bonus depreciation to apply to most qualifying property placed in service before January 1, 2020. It made a number of adjustments, including:
- Replacement of the bonus allowance for qualified leasehold improvement property with a bonus allowance for additions and improvements to the interior of any nonresidential real property, effective for property placed in service after 2015; and
- Allowance to farmers of a 50 percent deduction in place of bonus depreciation on certain trees, vines, and plants in the year of planting or grafting rather than the placed-in-service year, effective for planting and grafting after 2015.
Section 181 Expensing
Special Section 181 expensing for qualified film, television, and theatrical productions is extended for two years to apply to qualified film, television, and theatrical productions commencing before January 1, 2017.
The Work Opportunity Tax Credit (WOTC) has been extended five years through December 31, 2019. In addition, the credit has been extended to companies that hire individuals who are qualified long-term unemployment recipients and who begin work for the employer after December 31, 2015.
Another PATH extension went to the research credit that applies to amounts paid or incurred after December 31, 2014. With this extension, a new allowance of the research credit against alternative minimum tax liability applies to credits determined for tax years beginning after December 31, 2015. In addition, a new payroll tax credit associated with the research credit applies only to tax years beginning after December 31, 2015 (Act Sec. 121(d) (3) of the PATH Act).
Military Differential Pay
The PATH Act extends the employer tax credit for differential wage payments made to qualified employees on active military duty, has been made permanent, and applies to payments made after December 31, 2014. Effective only for tax years beginning after December 31, 2015, however, the credit may be claimed by all employers regardless of the average number of individuals employed during the tax year. The credit was also modified to where small businesses with under 50 employees can no longer take it.
Teachers’ Classroom Expense Deduction
Under the PATH Act, teachers’ above-the-line deductions have been permanently extended to elementary and secondary school teachers’ expenses. Included in these expenses are professional development courses, as long as the course in question will provide benefit to the teachers’ future instruction and curriculum.
Non-business Energy Property Credit
The PATH Act extended the nonrefundable non-business energy property credit allowed to citizens under Code Section 25C for two years, making it accessible for qualified energy improvements and property placed in service before January 1, 2017. If the property was placed in service after December 31, 2015, the standards for energy efficient building envelope components are adapted to meet new conservation measures.
Contact us if you have any questions about the new tax incentives 417-881-0145.