Update 2016 PATH

MERRY CHRISTMAS AND HAPPY NEW YEAR!
EXTENDER BILL BRINGS CLARITY TO TAX PICTURE

By Nick Hopkins
Partner and Director of Tax Services
With just a few days left before 2016, Congress has finally brought clarity to this year's tax picture with the passage of the "Protecting Americans from Tax Hikes Act of 2015," or PATH. President Obama signed the Act into law on December 18th.

Below are some of the key provisions of the PATH Act of 2015.

• The enhanced child tax credit is made permanent.
• The enhanced American Opportunity tax credit is made permanent. Beginning in 2016, taxpayers claiming this credit must report the EIN of the education institution to which tuition payments were made.
• The $250 teacher supply deduction is made permanent.
• The enhanced earned income tax credit is made permanent.
• The option to claim an itemized deduction for state and local general sales tax in lieu of an itemized deduction for state and local income taxes is permanently extended.
• Tax-free distributions from individual retirement plans for charitable purposes is permanently extended.
• The research and development tax credit is permanently extended. Additionally, beginning in 2016 eligible small businesses ($50 million or less in gross receipts) may claim the credit against alternative minimum tax (AMT) liability, and the credit can be utilized by certain small businesses against the employer's payroll tax liability.
• The 15-year straight-line cost recovery for qualified leasehold, restaurant and retail buildings and improvements is permanently extended.
• The provision permanently extends the Section 179 small business expensing limitation of $500,000 and phase-out amounts of $2,000,000 (expensing limitation and phase-out amounts are indexed for inflation after 2016).
• The Section 179 rules that allow expensing for computer software and qualified real property are permanently extended. The provision further modifies the expensing limitation with respect to qualified real property by eliminating the $250,000 cap beginning in 2016.
• The exclusion of 100 percent of gain on certain small business stock is permanently extended.
• The rule reducing to five years (rather than 10 years) the period for which an S corporation must hold its assets following conversion from a C corporation to avoid the tax on built-in gains is permanently extended.
• The Act authorizes the allocation of $3.5 billion of new markets tax credits for each year from 2015 through 2019.
• The work opportunity tax credit is extended through 2019.
• Bonus depreciation is extended for property acquired and placed in service during 2015 through 2019. The bonus depreciation percentage is 50 percent for property placed in service during 2015, 2016, and 2017 and phases down, with 40 percent in 2018, and 30 percent in 2019.
• The provision extends through 2016 the treatment of qualified mortgage insurance premiums as interest for purposes of the mortgage interest deduction.
• The above-the-line deduction for qualified tuition and related expenses for higher education is extended through 2016.
• The provision provides for a two-year moratorium on the 2.3% excise tax imposed on the sale of medical devices. The tax will not apply to sales during calendar years 2016 and 2017.
• The credit for purchases of nonbusiness energy property is extended through 2016.
• The credit for alternative fuel vehicle refueling property is extended through 2016.
• The energy efficient commercial buildings deduction is extended through 2016.
• The 50 cents per gallon alternative fuel tax credit and alternative fuel mixture tax credit is extended through 2016.
• The credit for purchases of new qualified fuel cell motor vehicles is extended through 2016. The provision allows a credit of between $4,000 and $40,000 depending on the weight of the vehicle for the purchase of such vehicles.

In addition to the PATH Act of 2015, the President also signed into law the 2016 Consolidated Appropriations Act on December 18th. This Act also contained a number of tax provisions of which a few are highlighted below:

• The 40% excise tax (also known as the "Cadillac tax") was scheduled to apply to high cost employer sponsored health plans for tax years beginning after December 31, 2017. The Act pushes back the effective date of the Cadillac tax by two years, such that it is now scheduled to go into effect for tax years beginning after December 31, 2019. The Act also removes the Cadillac tax from the list of nondeductible taxes and will now be allowed as a deduction against income tax.
• The Act extends the solar energy credit for which a taxpayer can claim a credit equal to 30% of the basis of eligible solar energy property placed in service during the year. The credit was set to expire for periods beginning after Dec. 31, 2016. The Act extends and modifies the credit to apply to solar energy property, the construction of which begins before Jan. 1, 2022. The Act also adds a phase-out for the solar energy credit under which the "energy percentage" on which the credit is based is gradually reduced.