Before adjourning for 2015, Congress enacted its “tax extender” legislation. There were more than 50 tax provisions that had expired as of December 31, 2014, and over the past decade or so, Congress has given these tax provisions a short legislative life of one to two years. These provisions were set to expire again, and in many cases did expire, before Congress enacted its legislation to extend them, often retroactively.
This situation may sound familiar as Congress responded in a similar way at the end of 2014. Despite promises to not wait as long in 2015 to address these provisions, they once again tabled these extender items until late December. In fact, the extender legislation was signed into law on December 19, 2015, exactly one year to the day after the enactment of the 2014 extender legislation.
With the 2015 legislation, the “Protecting Americans from Tax Hikes Act of 2015” (“PATH Act of 2015”, H.R. 2029), however, Congress modified its prior pattern of merely extending all 50 extender items for a year or two. The “PATH Act of 2015” adopted the following three paths for handling the various extender items:
Several provisions were made permanent as part of the “PATH Act of 2015.” Thus, these items will not need to be renewed or addressed at the end of 2016 or beyond. Nothing is truly “permanent” in the tax law, and Congress could always change any of these items, but there is no set expiration date for any of these provisions. They will remain part of the tax law until Congress decides to change or repeal them.
Some selected individual extender items made permanent by the “PATH Act of 2015” were the American Opportunity Education Tax Credit, the deduction for state sales tax, the tax-free distributions from the Individual Retirement Accounts (IRAs) for charitable purposes and the 100 percent gain exclusion for certain small business stock held for at least five years.
Some selected business extender items made permanent by the “PATH Act of 2015” were the “Section 179 Expensing” provision of up to $500,000 for certain qualifying property additions, the research tax credit and a reduction in the built-in gain (“BIG”) period to five years for S Corporations.
In several instances, some of the extender items were not only extended for a longer time period, but were also modified. One such modification was a significant enhancement to the research tax credit. For a qualified small business, generally defined as a business with less than $50 million of average gross receipts, the research tax credit will be allowed by the small business (including their owners at the individual level) against the regular tax and Alternative Minimum Tax (AMT). Previously, limitations restricted use of the research credit against the AMT for many small businesses and their owners.
There were several extender provisions that Congress hoped to make permanent, but instead passed with a five year extension period. One of the key five year items was for the 50 percent bonus depreciation which interests many businesses. This five year period provides more stability than the annual one year extension renewals which have generated much frustration in the past. Other selected five year items were the work opportunity tax credit and the new markets tax credit.
The remainder of the provisions that were not extended permanently or for a five year period, found themselves on the two year extension path. Some selected two year extender items include the income exclusion for certain debt discharge on a principal residence, the deduction for qualified tuition expenses, the special deduction under Section 179D for energy efficient commercial buildings and the excise tax and payments for alternative fuels.
Thus, not only will there be some certainty with 2015 tax returns, but there will be some stability for all of 2016 regarding these extender provisions. And even in some instances, there will be stability beyond next calendar year. While this annual delay has made tax planning difficult for many businesses and individuals, the extender items in the “PATH Act of 2015” are generally favorable, so impacted taxpayers should find some tax savings not only for 2015, but depending on their situation, for many years to come.
Other Changes Made by the “PATH Act of 2015”
The “PATH Act of 2015” was a significant piece of tax legislation – much larger than prior extender bills. Besides dealing with the extender measures addressed above, some selected other changes made by the Act were as follows:
- Beginning in 2017 (for the 2016 calendar year), the due date for employer wage reports with the IRS will be moved up to January 31.
- Provisions designed to safeguard against fraudulent tax refund claims,
- An expansion of Section 529 education accounts to include computers as a qualified higher education expense,
- Several provisions to restrict and limit Real Estate Investment Trusts (REITs),
- A number of IRS reform measures, as well as some changes to the U.S. Tax Court.
- In addition, there were two changes made to the “Affordable Care Act of 2010” (ACA) that were not included in the “PATH Act of 2015,” but in an accompanying spending bill. One change deferred for two years (until 2019) the “Cadillac Tax” on certain health plans. The other change was to suspend for two years the collection of the excise tax on certain medical devices. This excise tax was implemented by ACA and has been in effect for several years, but will not be collected now in 2016 and 2017. Both of these ACA items will need to be monitored for any possible future changes.
Again, there were more than 50 tax extender provisions in this bill, as well as a number of other changes. For more information of the “PATH Act of 2015,” please review the following resources:
Impact to You and Your Business
There was much uncertainty in 2015 with a number of these extender provisions. Many puzzled taxpayers and tax practitioners were asking:
- Might some of these extender items expire this time around?
- Or will all of these provisions get extended again, as they have many times in the past?
- Might some of these items get extended for more than one year? Perhaps some items would be made permanent?
- Will Congress again wait until the 11th hour for the final law to be enacted to reflect these tax extender provisions? Or, will they act earlier?
The added permanency, and five-year extension in some cases, was a step in the right direction this year. Now that the path is much clearer, taxpayers and tax advisers can analyze the changes and decide the possible tax impact for 2015 and beyond.
Still looking for help with how this legislation can help you or your business?