In 2015, congress passed the “Protecting Americans from Tax Hikes Act of 2015” (PATH), which brought relief of uncertainties for many tax laws. We have outlined some important changes, permanent provisions, and extended provisions, that were included in the PATH bill.
Changes in 2015
Health Insurance PenaltyIf you did not have full health coverage in 2014 and did not qualify for an exception, chances are you only paid $95 per person or 1% of your household income as a penalty.
For 2015, this penalty is significantly increased. If you are not fully covered by health insurance and do not quality for an exception, you will be paying $325 per person or 2% or your household income, whichever is greater.
Caution: Some exceptions require you to apply for a certificate from the state or federal marketplace. This needs to be done promptly in order to have the required exemption certificate number for the tax return.
IRA RolloversBefore 2015, taxpayers could easily “borrow” retirement money by withdrawing funds from one IRA and waiting 60 days before they rolled it over into another IRA. Taxpayers did not have a limit on the amount of rollovers.
As of 2015, taxpayers are limited to one rollover in a 12-month period. However, if you are moving IRA funds using “trustee-to-trustee” transfers, there is no limit.
Some Individual Provisions Made Permanent
Enhanced Child Tax Credit: In addition to a $1,000 credit per qualifying child, parents are entitled to an additional refundable credit equal to 15% of earned income in excess of $3,000. In 2017, the threshold would have been raised back to $10,000; however, the $3,000 threshold was made permanent.
Enhanced American Opportunity Tax Credit: Taxpayers are entitled to a $2,500 credit for four years of post-secondary education, with phase-outs beginning at $80,000 (if single) and $160,000 (if married filing jointly). The credit would have been reduced to $1,800 with lower phase-out thresholds in 2017; however, the $2,500 credit was made permanent.
Enhanced Earned Income Credit: The enhancements to the Earned Income Credit were set to expire in 2017. The passing of the PATH bill made the enhanced credit for families with three or more children permanent and increased the phase-out for married couples filing jointly to $53,267.
Educator Expense Deduction: The $250 educator expense deduction for K-12 supplies is now a permanent deduction. Furthermore, the deduction will be indexed for inflation, meaning educators will be receiving a higher deduction in future years.
Charitable Donations: The deduction for charitable contribution of real property for conservation purposes is now permanently allowed. Taxpayers over 70 ½ may make donations directly from an IRA and will not be taxed on the amounts (up to $100,000). A shareholder in an S Corporation will be required to reduce his/her basis in the S Corporation’s stock under Section 1366 only for his/her share of the basis of property contributed by the S Corporation; not the fair market value.
Individual Provisions ExtendedBonus Depreciation: The 50% bonus depreciation was extended for property placed in service during 2015 through 2019; the 50% rate is phased down to 40% for property placed in serviced during 2018 and 30% for property placed in serviced during 2019
Energy Incentives: A $500 credit for the purchase of certain non-business energy-efficient property has been extended for two years. Also, Section 179 expensing of certain heating, cooling, and lighting improvements to commercial property has been extended for two years.
Business Provisions Made PermanentEnhanced Section 179 Deduction: The Section 179 Deduction limit is now permanent at the $500,000 level. However, businesses exceeding a total of $2 million of purchases in qualifying equipment have a phase-out dollar-for-dollar and completely eliminated about $2.5 million. Additionally, the Section 179 Deduction will be indexed to inflation in $10,000 increments in future years.
Abbreviated 15-Year Life: Qualified retail, restaurant, and retail improvements can be depreciated over the shortened 15, rather than 39, year recovery life. This abbreviated asset life has been made permanent.