It finally happened – we have a “tax extender” package. The bill was signed into law on December 18, 2015. This is a multi-faceted law with a lot of wrinkles. There are some new tax provisions contained in the law. Some of the extended provisions are effective for 2015 and 2016. Some of the extended provisions run through 2019. Finally, some of the extended provisions are now permanent fixtures in the tax law meaning that we do not have to take a wait and see attitude if these provisions are going to be in for one year and out for the next year.
There were over 50 provisions that were on the table for consideration. The following is a recap of the most popular extenders.
- Depreciation under Code Section 179 is permanent at $500,000 based on total annual equipment purchases not exceeding $2 million for a year starting on January 1, 2015. Applies to the purchase of new AND used equipment.
- Special 15 year depreciation for qualified leasehold improvements, and qualified restaurant and retail improvement property is permanent starting January 1, 2015.
- State and local sales tax deductions claimed in lieu of state and local income tax is permanent starting on January 1, 2015. This is an “itemized deduction” which is claimed on Form 1040, Schedule A if you itemize your deductions.
- Tax-free IRA distributions of up to $100,000 per year for donations made by the IRA direct to charities are permanent starting January 1, 2015 for taxpayers over age 70 ½ years old.
- The American Opportunity Tax Credit relating to tax credits associated with the cost of paying for certain college expenses is permanent starting January 1, 2015.
Extended Through 2019:
- Bonus depreciation – remains at 50% for 2015, 2016, and 2017, changes to 40% for 2018, and changes again to 30% for 2019. No provision at this time after 2019. This applies ONLY to the purchase of NEW equipment and there is no cap on the total annual cost of equipment purchased.
Extended for 2015 and 2016 only:
- Extension and modification of the exclusion from income for mortgage debt discharge.
- Extension of certain deductions for qualified tuition and related expenses.
- Residential property energy tax credits up to $500 for insulation, energy efficient windows, and energy efficient heating and air conditioning systems based on 10% of the cost.
This list does not cover all of the provisions of the extender package but only identifies key provisions that are likely to affect you and your business. Be sure to give me a call if you have any questions on these or any of the other provisions contained in the tax extender law.