Just before the 2015 holidays, Congress passed, and President Obama signed, both the “Protecting Americans from Tax Hikes Act of 2015” and an omnibus budget bill for FY 2016. In total, these acts made permanent a number of commonly used and key tax provisions. The acts also extended many other key provisions and made some significant changes to tax provisions of the Affordable Care Act (“ACA”, commonly known as Obamacare). Key provisions of these acts include the following:
Obamacare Tax Changes
- The ACA excise tax on high-value, employer-provided health benefit plans, commonly referred to as “Cadillac” plans was delayed for two years. This tax will now begin in 2020, rather than 2018.
- A two year moratorium, for 2016 and 2017, was placed on the 2.3% ACA medical device excise tax. This excise tax took effect in 2013.
- A one year moratorium, for 2017, was placed on the ACA tax levied on private health insurance. This tax is commonly referred to as the health insurance industry fee. The total fee was $11.3 billion for 2015 and 2016. The fee is scheduled to return at $14.3 billion for 2018.
Individual Tax Changes
- The acts made permanent the following key individual tax provisions: a) the state and local sales tax deduction; b) the American Opportunity Tax Credit, an enhanced version of the Hope education credit; c) the $3,000 refundable Child Tax Credit available to certain taxpayers; d) the increased phaseout of Earned Income Credit available to joint filers; and e) the above-the-line deduction for teachers’ classroom expenses.
- The acts also permanently extended the tax provision that allowed individuals aged 70½ and older to make tax-free distributions from their IRA account to a charitable organization. Tax-free distributions are capped at $100,000 per individual per year. Distributions in excess of $100,000 must be included in income, but may be recognized as an itemized deduction if paid to a charity.
- The acts extended the following individual tax provisions to apply in 2015 and 2016: a) the above-the-line deduction for tuition and fees for college education; and b) the treatment of mortgage insurance premiums as deductible interest for qualified residences.
- For 2015 and 2016, the acts excluded, from a taxpayer’s income, cancellation of mortgage debt on a qualified principal residence of up to $2 million. This exclusion also applies to debt on a qualified principal residence in 2017 if the discharge is made pursuant to a written agreement executed during 2016.
Permanent Business Tax Changes
- The acts permanently set the Sec. 179 expensing limit at $500,000, along with a $2 million investment limit before phaseout. Both of these amounts will be indexed for inflation beginning in 2016. Furthermore, the acts made permanent the Sec. 179 expensing for real property and removed the $250,000 cap on this category of expenses.
- The 100-percent exclusion, for non-corporate taxpayers, on the gain from the sale of qualified small business stock held for more than 5 years was made permanent.
- The acts permanently extended, and modified, the research and development tax credit which is available for taxpayers who make business-related qualified research expenditures. This credit is also available for increases in payments to universities and certain other organizations for basic research.
- The five year recognition period for built-in gain following conversion to an S corporation (from a C corporation) was made permanent.
- The acts permanently extended: a) the 15-year straight-line depreciation for restaurant property, qualified leasehold improvements, and retail improvements; b) the employer credit for wages paid to employees who are active duty members of the military; and c) the stock basis adjustment when an S corporation makes a charitable gift of property.
Business Tax Extensions
- The acts extend the popular bonus depreciation for new property through 2019 under the following phase-down schedule: 50% for 2015-17; 40% for 2018 and 30% for 2019.
- The acts also extend the Work Opportunity Credit through 2019 and authorize $3.5 billion in new markets tax credits for each year from 2015 through 2019.
The acts also made numerous other changes to the federal tax code. Feel free to contact a member of the McGrath North Tax Group to discuss how these changes may impact you or your clients.