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Congress Extends Tax Breaks – Some Permanently, Some Only Temporarily

By MarksNelson on December 18, 2015 in Articles, Tax, Tim Ernesti CPA, CGMA
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There were 52 provisions of the Internal Revenue Code that expired on December 31, 2014.  Congress has in the past repeatedly extended these tax breaks for short periods of time, thus the name “extenders”.  This time, however, the negotiations led to many provisions being made permanent while others were only extended again.  The bill was approved by the House Thursday and is expected to be approved by the Senate Friday.  There is no indication of a White House veto.

An overview of the major tax provisions included in this bill as it currently reads is provided below:

INDIVIDUALS

Provisions made Permanent

  • Enhanced child tax credit;
  • American opportunity education tax credit, up to $2,500;
  • Enhanced earned income tax credit;
  • $250 deduction for certain expenses of elementary and secondary school teachers. Beginning in 2016, this amount will be adjusted for inflation;
  • Parity for exclusion from income for employer-provided mass transit and parking benefits;
  • The option to take an itemized deduction for state and local general sales taxes instead of state and local income taxes;
  • Special rule for contributions of capital gain real property made for conservation purposes;
  • Tax-free distributions from individual retirement plans for charitable purposes of up to $100,000 per taxpayer, age 70 ½ or older, per tax year.

Temporary Extensions of Provisions Through 2016

  • Exclusion from gross income of up to $2 million ($1 million if married filing separately) of discharge of qualified principal residence indebtedness;
  • The deduction of mortgage insurance premiums deductible as qualified residence interest, subject to certain income limitations;
  • The deduction for qualified tuition and related expenses in computing adjusted gross income.

BUSINESSES, ENERGY PRODUCTION & CONSERVATION

Provisions made Permanent

  • Increased expensing limitations ($500,000 in 2015; adjusted thereafter for inflation) and treatment of certain real property, air conditioning and heating units, as section 179 property. The threshold at which the section 179 deduction starts to be limited has been increased to $2,000,000 of asset purchases for 2015 and is adjusted each year thereafter for inflation;
  • The 15-year straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements;
  • The S-corporation recognition period for built-in gains tax has been reduced to 5 years;
  • 100 percent of gain on certain small business stock is excluded from gross income;
  • The research credit is made permanent for tax years 2015 and forward. Beginning in 2016, eligible small businesses may use the credit to offset alternative minimum tax;
  • The employer wage credit for employees who are active duty members of the uniformed services;
  • Treatment of certain dividends of regulated investment companies;
  • Exceptions under subpart F for active financing income;
  • Charitable deduction for contributions of food inventory up to 15% of taxpayer’s aggregate net income;
  • Tax treatment of certain payments to controlling exempt organizations;
  • Basis adjustment to the stock of S corporations making charitable contributions of property;
  • Minimum low-income housing tax credit rate for non-Federally subsidized buildings;
  • Military housing allowance exclusion for determining whether a tenant in certain counties is low-income;
  • Extension of RIC qualified investment entity treatment under FIRPTA.

Temporary Extensions of Provisions Through 2016

  • Indian employment tax credit;
  • Extension and modification of railroad track maintenance credit;
  • Extension of mine-rescue team training credit;
  • Qualified zone academy bonds;
  • Classification of certain race horses as 3-year property;
  • Extension of 7-year recovery period for motorsports entertainment complexes;
  • Extension and modification of accelerated depreciation for business property on an Indian reservation;
  • Extension of election to expense mine safety equipment;
  • Extension of special expensing rules for certain film and television productions; special expensing for live theatrical productions;
  • Deduction allowable with respect to income attributable to domestic production activities in Puerto Rico;
  • Empowerment zone tax incentives;
  • Extension of temporary increase in limit on rum excise taxes to Puerto Rico and the Virgin Islands;
  • American Samoa economic development credit;
  • Credit for nonbusiness energy property;
  • Credit for alternative fuel vehicle refueling property;
  • Credit for 2-wheeled plug-in electric vehicles;
  • Extension of second generation biofuel producer credit;
  • Extension of biodiesel and renewable diesel incentives;
  • Extension and modification of production credit for Indian coal facilities;
  • Credits with respect to facilities producing energy from certain renewable resources;
  • Credit for construction of new energy-efficient homes;
  • Extension of special allowance for second generation biofuel plant property;
  • Energy efficient commercial buildings deduction;
  • Extension of special rule for sales or dispositions to implement FERC or State electric restructuring policy for qualified electric utilities.
  • Excise tax credits relating to alternative fuels;
  • Credit for new qualified fuel cell motor vehicles.

Temporary Extensions of Provisions Through 2017

  • Moratorium on medical device excise tax.

Temporary Extensions of Provisions Through 2019

  • Bonus depreciation at 50% for 2015 through 2017 and phased down to 40% for 2018 and 30% for 2019.
  • The election to accelerate alternative minimum tax (AMT) credits in lieu of additional first-year depreciation;
  • New markets tax credit;
  • Work opportunity tax credit (expanded to make credit available for hiring certain long-term unemployed individuals);
  • Extension of look-thru treatment of payments between related controlled foreign corporations under foreign personal holding company rules.

OTHER PROVISIONS

Additional provisions included would provide:

  • Exclusion for amounts received under the Work Colleges Program;
  • Improvements to section 529 accounts, including allowing computer equipment and technology to be treated as qualified expenses;
  • Elimination of residency requirement for qualified ABLE programs;
  • Clarification of special rule for certain governmental plans;
  • Rollovers permitted from other retirement plans into simple retirement accounts;
  • Technical amendment relating to rollover of certain airline payment amounts;
  • Prevention of extension of tax collection period for members of the Armed Forces who are hospitalized as a result of combat zone injuries;
  • Significant changes to the tax treatment of Real Estate Investment Trusts (REITs);
  • Modifications to alternative tax for certain small insurance companies;
  • Technical corrections to the recently enacted partnership audit rules.

If you would like more details about these changes or any other aspect of the new law, please do not hesitate to contact either Tim Ernesti or your MarksNelson advisor at (816) 743-7700.

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About the author

Tim Ernesti’s experience in tax, especially in the areas of real estate and manufacturing/distribution tax, is broad and deep.


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