Details of the 2015 Tax Extender Legislation Just Passed by Congress

Today, December 18, 2015, Congress passed the Protecting Americans from Tax Hikes Act of 2015 (Amendment to HR 2029). Congress re-enacted all 50+ expired tax provisions that had expired at the end of 2014 by making some of them permanent, extending a few for 5 years, and extending the remainder for 2 years. The legislation also includes additional provisions that are related to the earned income tax credit, due diligence requirements for child tax credit and the education credit, and other administrative items that will affect tax preparers and taxpayers. This legislation will become law once the President signs it.

The tax provisions that expired at the end of 2014 were re-enacted as follows:

Provisions Made Permanent

Listed below are some of the most relevant provisions that were made permanent:

•  Educator Expense Deduction – Form 1040, line 23
•  Itemized Deduction for Sales Tax – Schedule A, line 5
• Increased Section 179 Expense Deduction Amounts

o   Maximum Deduction: $500,000

o   Maximum cost before the limit is reduced: $2,000,000

• Qualified Real Property category for Section 179 Expense Deduction

o   Maximum deduction: $250,000 for 2015, $500,000 after 2015

o   Qualified property includes: leasehold improvements, restaurant property, and retail improvement property

o   Added air conditioning and heating units beginning in 2016

• Exclusion from income for employer-provided mass transit benefits
• 15 year straight line depreciation for qualified leasehold restaurant and retail improvements
• Employer wage credit for active duty members of the uniformed services
• Research and Development Credit
• 5 provisions related to charitable contributions
• 4 additional provisions related to businesses
• 3 provisions related to real estate investment

The following provisions as they currently exist (but were set to expire at the end of 2017) were also made permanent:

•  Income threshold for Additional Child Tax Credit is permanently set at $3,000
•  Enhanced American Opportunity (Education) Credit
•  Expanded Earned Income Tax Credit

Provisions Extended for 5 Years (2015 – 2019)

• 50% Bonus Depreciation
• Work Opportunity Credit and New Markets Credit

Provisions Extended for 2 Years (2015 and 2016)

The remaining 30 expired provisions were extended for two years. Here is a list of some of the more relevant provisions for individuals:

• Exclusion of gain from income of foreclosed home mortgage debt (Form 982, line 1e)
• Tuition and Fees Deduction - Form 8917/Form 1040, line 34
• Nonbusiness Energy Property Credit – Form 5695, Part I
• Ability to treat mortgage insurance premiums as qualified mortgage interest
• 14 provisions related to businesses
• 12 additional provisions related to energy and conservation

Other New Provisions

The legislation also included what Congress is calling “program integrity provisions,” all of which go into effect beginning with Tax Year 2016 as follows:

• The due date for employers to file with SSA and IRS Form W-2s and 1099s will be January 31 beginning in 2017 for 2016 wage and information forms.
• The provisions expand paid preparer EITC due diligence requirements and the associated $500 penalty to include the child tax credit and the American Opportunity Education credit.
• The IRS can now bar an individual whom has fraudulently claimed the earned income tax credit for ten years.
• The IRS can bar an individual whom has intentionally disregarded the rules from claiming the child tax credit and/or the American Opportunity Credit for two years.
• The provisions prohibit a taxpayer from retroactively claiming the earned income tax credit, child tax credit, or American Opportunity Education Credit for any year the individual or qualifying child did not have a taxpayer identification number.
• There is an increase to the penalty for tax preparers who engage in willful or reckless conduct to the greater of $5,000 or 75% of the preparer’s income with respect to the return.
• There is now a requirement that the EIN of an educational institution be reported on Form 8863.

For more details and a complete list of all the provisions included in this legislation see the following:

• House Ways and Means Section-by-Section Summary of the Proposed “Protecting Americans From Tax Hikes Act of 2015 
• Joint Committee on Taxation’s Technical Explanation of  The Protecting Americans From Tax Hikes Act of 2015

Status of Federal Extender Tax Provisions that Expired at End of 2014

The federal extender tax provisions expired at the end of 2014. Although it appears that Congress will extend these provisions before the end of the year, it is still helpful to reiterate what these provisions are.

Below is a list of the most used of the expired tax provisions and how the Sec. 179 expense provisions would significantly change for Tax Year 2015 if they are extended.

Provisions that need to be extended by Congress to be applicable for Tax Year 2015:

• $250 Educator Expense Deduction – Form 1040, line 23
• Tuition and Fees Deduction – Form 8917
• Itemized Deduction for Sales Tax
• 50% Bonus Depreciation
• Exclusion of gain from income for foreclosed home mortgage debt (Form 982)
• 15 year straight line depreciation allowed for qualified leasehold restaurant and retail improvements
• Tax-free distributions from IRAs for charitable purposes
• Nonbusiness energy property tax credit  on Form 5695
• Contributions of capital gain real property made for conservation purposes (50% limitation applies instead of 30% limitation)
• Qualified Real Property category for Sec. 179 expensing purposes

Also, the following limits are in effect for Tax Year 2015 unless Congress extends the expired Section 179 expense provisions:

• Maximum Section 179 Deduction amount: $25,000
• Maximum Cost before Section 179: $200,000

Congress has begun discussions on extending these tax provisions. However, an actual bill will probably not be voted on until sometime this fall. With everything else that Congress needs to take care of this fall, it appears that a bill extending these tax provisions will not be passed until December 2015. Check back here later for more information on what occurs with these provisions and what impact the lateness in the passage of any legislation may have on the start of the 2016 filing season.

For a complete listing of all the expired tax provisions that affect both individuals and businesses, see Things to Know for Current Tax Year section (under Provisions Extended for 2014) of the Tax Resource Center on the CrossLink website.

Federal Tax Provisions Extended for One Year

On December 16, 2014, Congress finished passing legislation that extended, for one year, virtually all of the provisions that had expired at the end of 2013. The bill HR 5771 will become law once the President signs it.

Here is a list of some of the provisions that are now applicable for Tax Year 2014 returns:

• $250 Educator Expense Deduction – Form 1040, line 23
• Tuition and Fees Deduction – Form 8917
• Itemized Deduction for Sales Tax – Schedule A
• 50% Bonus Depreciation
• Exclusion of gain from income for foreclosed home mortgage debt (Form 982)
• Section 179 Deduction:
• Maximum Amount: $200,000
• Maximum Cost: $2,000,000
• Qualified Real property category which includes leasehold improvements, restaurant property and retail property with a maximum deduction of $250,000
• Qualified Real Property
• 15 year straight line depreciation allowed for qualified leasehold restaurant and retail improvements
• Tax-free distributions from IRAs for charitable purposes
• Nonbusiness energy property tax credit on Form 5695
• Contributions of capital gain real property made for conservation purposes (50% limitation applies instead of 30% limitation)

For a complete listing of the individual and business provisions that were extended for 2014 only, as well as changes related to the Affordable Care Act and other reminders, see the Things to Know for the Current Tax Year page on the Crosslink Tax website.

2013 Federal Tax Changes to Be Aware Of

Itemized Medical Expense Deduction Threshold Percentage Change
As part of the Affordable Care Act, the threshold percentage for when medical expenses are included as an itemized deduction on Schedule A was changed to:

• Taxpayers under 65: 10%
• Taxpayers 65 and older: 7.5%

Basic Changes
Business Mileage Rate for 2013: 56.5 cents per mile

Bonus Depreciation: 50% rate still applies

Capital Gains/Dividends Tax Rate:

• 0% for taxpayers in 10% or 15% tax brackets
• 15% for taxpayers in 25%, 28%, 33%, or 35% tax brackets
• New 20% rate for taxpayers in new 39.6% tax bracket

Standard Deduction

• Single: $6,100
• Married Filing Jointly: $12,200

For a complete listing of the basic yearly changes for 2013, see the Things to Know for Current Tax Year section of the Tax Resource Center on the CrossLink website.

New Provisions Affecting Higher Income Individuals
Individual Income Tax Rates

• Added new 39.6% rate when the AGI reaches:
• $400,000 - Single
• $450,000 - Married Filing Joint
• $425,000 - Head of Household
• $225,000 - Married Filing Separate
• The 10%, 15%, 25%, 28%, 33%, and 35% brackets were made permanent

Phase-Out of Itemized Deductions and Personal Exemptions
Beginning in 2013, the taxpayer's itemized deductions and personal exemptions will begin to be reduced when their adjusted gross income (AGI) reaches the following threshold amounts:

• $250,000 - Single
• $300,00 - Married Filing Jointly
• $275,000 - Head of Household
• $150,000 - Married Filing Separately

The reduction in Itemized Deductions will be calculated as the lesser of:

• 3% of the amount over the taxpayer's threshold amount; or
• 80% of the total itemized deductions

Personal exemptions will be reduced by 2% for each $2,500 (or fraction thereof) by which the taxpayer's AGI exceeds the applicable threshold amount.

For a complete listing of what Federal provisions have changed or what extender provisions are still in effect for 2013, see the Things to Know for Current Tax Year section of the Tax Resource Center on the CrossLink website.