On December 31, 2014, 52 provisions of the IRS code expired. Some of the business incentive provisions that expired that day were the R&D credit, bonus depreciation and enhanced Section 179 write-offs of asset acquisitions. Individual taxpayers lost the itemized deduction for state and local sales taxes in lieu of income taxes and the exclusion for cancellation of debt income related to primary residence mortgages. However, in December, 2015, Congress extended most of these provisions. The extension is retroactive to January 1, 2015. Additionally, many of the provisions have been made permanent. Here are some of the most salient parts of the bill:
Permanent Business Provisions
- R&D Credit – The R&D tax credit will be available for 2015. Additionally, starting in 2016, businesses with less than $50 million in gross receipts will be allowed to use the credit to offset the alternative minimum tax. In addition, certain start-ups that may not have an income tax liability will be able to offset payroll taxes with the credit.
- Enhanced Section 179 Deductions – In recent years, taxpayers have been allowed to deduct up to $500,000 of the cost of qualifying asset acquisitions with a phase-out beginning at $2 million. These thresholds were due to plummet to $25,000 and $200,000 respectively. The new deal reinstates Section 179 at the higher limits, while indexing them for inflation in future years. Taxpayers will continue to be eligible to apply Section 179 to purchases of computer software and qualified leasehold, retail, and restaurant improvements.
- Abbreviated 15 Year Life of Qualified Retail, Restaurant, and Retail Improvements – The shortened 15 year recovery life of these three types of assets has been made permanent.
- Reduction in S Corporation Built In Gains Recognition Period – This is beneficial to owners of C corporations who have been considering making an election to be taxed as an S corporation. They will now only be subject to corporate-level tax on the disposition of appreciated assets owned at the conversion date for five years, rather than ten.
Permanent Individual Provisions
- Enhanced American Opportunity Tax Credit – From 2009 through 2015, taxpayers have been entitled to a $2,500 credit for four years of post-secondary education with phase-outs beginning at $80,000, if single, and $160,000, if married filing jointly. The credit was to return to $1,800 with lower phase-out thresholds soon. This deal makes the $2,500 tax credit permanent.
- Teacher Supplies Deduction – Teachers will now be entitled to a $250 deduction for K-12 supplies. In addition, the deduction will now be indexed for inflation.
- Itemized Deduction for State and Local Sales Taxes in Lieu of Income Taxes – This deduction was made permanent.
- Charitable Giving Incentives – One highlight of the provision includes taxpayers who are over 70 1/2 may make donations directly from an IRA and will not be taxed on the amounts up to $100,000.
Provisions Now Extended Through December 31st , 2019
- Bonus Depreciation – The 50% immediate expensing of asset acquisitions is being phased out. It will be at 50% for 2015, 2016 and 2017. It will then be reduced to 40% in 2018 and 30% in 2019. In 2020, it will be gone.
Provisions Now Extended Through December 31st , 2016
- Tuition deduction – A maximum above-the-line deduction of $4,000 will continue to be permitted for tuition costs for higher education.
Delay of Obamacare Provisions
- Medical Devices Excise Tax – The 2.3% excise tax on medical devices is paused for 2016 and 2017.
- Health Insurance “Cadillac” Tax – The start of the “Cadillac” tax on high cost employer sponsored health insurance is delayed from 2018 to 2020.
If you have any questions regarding this article, please contact Jamie Downey at 800-849-6022 or at JMDowney@DowneyCoCPA.com.
