Significant Tax Legislation is Passed by Congress

The “PATH” Act (Protecting Americans from Tax Hikes Act of 2015)

Stan Rose, Managing Director, Tax Practice
December 18, 2015

Today the Senate passed a bill that the House approved yesterday, sending it to the President, who has indicated he will sign it into law. The bill is referred to as the “PATH” Act (Protecting Americans from Tax Hikes Act of 2015), and it is very meaningful legislation that has been awaited by taxpayers and their accountants for some time. 

The bill retroactively extends to 1/1/15 numerous benefits that expired at the beginning of this year.  If this seems like déjà vu, there’s a reason for it: Last year we received word of retroactive extensions on 12/17/14. Worse, Congress figuratively took a shovel to the reindeer stalls to fill up taxpayers’ Christmas stockings by creating provisions at that time that expired just a few days later on 12/31/14. Senator Ron Wyden, D-OR correctly quipped at the time that the 2014 tax bill “doesn’t have the shelf life of a carton of eggs!”

By contrast, today’s 2015 extenders represent a marked improvement, extending many benefits prospectively for multiple years in addition to retroactively to 1/1/15. Even better, it makes some widely-used provisions permanent beginning with 1/1/15, including the $500,000 Section 179 deduction and the research credit.

We frustratingly have become accustomed to last-minute rule changes that occur far too late in the year to allow adequate cash planning, and of course that is what has happened here, in 2015. The PATH Act helps us to avoid that ridiculous situation in future years.

A quick overview of some of the provisions is as follows:

Permanent benefits:

  • $500,000 Section 179 deduction, subject to phase-out for acquisitions exceeding $2,000,000
  • Credit for increasing research activities
  • Reduced recognition period for S corporation built-in gains
  • Enhanced Child Credit, American Opportunity Credit and Earned Income Credit
  • 15-year cost recovery for qualified leasehold, restaurant and retail improvement costs
  • Tax-free distributions from IRA to qualified charities
  • Itemized deduction allowed for state and local sales tax

Temporary benefits:

  • Bonus depreciation (50% through 2017; 40% for 2018; 30% for 2019)
  • Work Opportunity Credit – extended through 2019
  • New Markets Tax Credit – extended through 2019
  • Credit for Energy Efficient Homes – extended through 2016
  • Exclusion from income of discharge of principal residence indebtedness – extended through 2016
  • Above-the-line deduction for qualified tuition costs – extended through 2016

There are many more provisions in the PATH Act, and the full text may be found here.

If you have any questions on the PATH Act and how it may impact you, please contact your Baker Newman Noyes tax professional at 1-800-244-7444.

Disclaimer of Liability: This publication is intended to provide general information to our clients and friends. It does not constitute accounting, tax, or legal advice; nor is it intended to convey a thorough treatment of the subject matter.