Congress did not let us down in 2015 by not passing a bill to extend over 50 tax provisions that expired on January 1, 2015. They just waited until December 18, 2015, to pass the tax bill. It left us with 13 days in 2015 to take advantage of the tax provisions. The Protecting Americans from Tax Hikes Act of 2015 (PATH Act) extended several provisions that expired on January 1, 2015, but instead of extending for just one year like Congress has done the past several years, they made some provisions permanent: some have five-year extensions and others have two-year extensions.
You may be wondering whether there are any provisions in the PATH Act that would benefit your operations and what you should do to take advantage of them. First, we will go over the provisions that will affect your financial institution.
There are three permanent provisions that will benefit financial institutions. The most beneficial one is that the Section 179 deduction for depreciation will now be permanently set at $500,000 each year and will be indexed for inflation starting in 2016. The result is that you will be able to take a tax deduction up to $500,000 for qualified fixed assets purchased in the year as long as you do not exceed $2 million in fixed asset additions for the year. Also, “off-theshelf” software is eligible for Section 179, and qualified leasehold improvements are considered 15-year assets instead of 39-year assets. In addition, the period of time that the built-in gains tax applies to an S corporation after it converts from a C corporation is now only 5 years instead of 10 years. Lastly, your customers who are over 70 ½ years old are now permanently allowed to make gifts of up to $100,000 directly to charities from their IRA to count as their annual RMD.
The PATH Act included several provisions that were extended until 2019 that will benefit financial institutions. Congress brought back bonus depreciation at 50% for 2015, 2016, and 2017, 40% for 2018, and 30% for 2019. The bonus depreciation is allowed for AMT purposes as well. Also, the work opportunity credit and the new market tax credits were extended through 2019. Finally, the PATH Act included provisions that were only extended through the end of 2016. There are three items that are applicable to financial institutions: The Qualified Zone Academy Bonds Credits, qualified mortgage interest (includes mortgage premium insurance) for reporting on Form 1098, and married individuals filing a joint return can exclude up to $2 million of discharge of principal residence indebtedness from gross income. The PATH Act extended individual tax provisions as well. I will highlight the more common provisions since we all file individual tax returns.
- The permanent extensions for individuals are as follows:
- The American Opportunity Tax Credit for secondary education is now a permanent credit.
- The state and local general sales tax can be deducted instead of state income taxes for itemized deductions.
- Teachers are being allowed to deduct $250 for expenses paid for classroom supplies as an “above the line deduction.”
- The qualification for refunding a portion of the child tax credit is being made more taxpayer friendly.
- The employer-provided mass transit and parking benefits parity is now an income exclusion item.
- The earned income tax credit is being increased to 45% for individuals with three or more qualifying children.
- The contribution limit of appreciated real property for conservation purposes is now 50% and the carryforward period is 15 years.
The PATH Act includes benefits for your financial institution as well as you personally. You should consult your tax advisor to see which provisions will benefit you the most.