In late December, the House and Senate passed the Protecting Americans from Tax Hikes Act of 2015 (PATH Act). This bill does more than just extending the typical tax provisions seen in prior years. This bill extends or enhances the typical tax extenders and makes permanent over 20 key tax provisions including the Section 179 deduction and the American Opportunity Tax Credit. In addition, it extends popular provisions such as bonus depreciation for five years; and revises others for two years. The provisions and highlights of the Act are summarized below in two parts: one part for individuals and one part for businesses:
Part One: Individuals
Extenders for Individuals: Permanent Extensions
- State and Local Sales Tax Deduction – The PATH Act makes the election to claim an itemized deduction for state and local general sales taxes, in lieu of deducting state and local income taxes, permanent.
- American Opportunity Tax Credit – The original AOTC had been scheduled to expire after 2017; however, this Act makes it permanent. The AOTC rewards qualified taxpayers with a tax credit of 100% of the first $2,000 of qualified tuition and related expenses and 25% of the next $2,000, for a total maximum credit of $2,500 per eligible student.
- Child Tax Credit – The Child Tax Credit was made permanent by the ATRA Act of 2012. The PATH Act makes the following permanent: the credit may be refundable to the extent of 15 percent of the taxpayer’s earned income in excess of $3,000.
- Charitable Distributions from IRAs – Individuals age 70 ½ and older are allowed to make tax-free distributions from IRAs to a qualified charitable organization. The PATH Act made this provision permanent. The treatment continues to be capped at a maximum of $100,000 per taxpayer each year.
- Other Permanent Extensions for Individuals – Teachers’ Classroom Expense deduction up to $250, Qualified Conservation Contributions, Transit Benefits Parity.
Extenders for Individuals: Two-Year Extensions
- Qualified Tuition/Related Expenses – The above-the-line deduction for qualified tuition and fees for post-secondary education has been extended through 2016.
- Mortgage Debt Exclusion – Up to 2 million can be excluded from income on a cancellation of mortgage debt on a principal residence.
- Mortgage Insurance Premium Deduction – Mortgage insurance premiums are treated as deductible interest that is qualified residence interest subject to AGI phase-out. The Act extends this through 2016.
Extenders for Individuals: Energy Extenders
- Code Sec. 25C – The Act extends through 2016 the Code Sec. 25C residential energy property credit. Code Sec. 25C property includes adding insulations, energy efficient exterior windows and energy efficient heating and air conditioning systems. The credit is up to 10% of qualifying expenses with a cap of $500.
- Solar Incentives – The Act extends the solar investment tax credit for qualified residential solar property but subjects the credits to phase-down.