On December 18th of 2015, President Obama discussed a Legislative Tax Update on Capitol Hill. He signed into law a sweeping $1.14 trillion dollar funding bill that will keep the federal government operating through September 30th of 2016. In connection to the tax aspects of this comprehensive and pivotal legislation, the Protecting Americans from Tax Hikes Act of 2015 (hereinafter the “PATH Act”) does considerably more than the typical tax-extenders legislation passed in previous years and truly signifies a dynamic paradigm shift as the PATH Act makes permanent over twenty leading tax incentives, including the Research & Development Tax Credit Program, the American Opportunity Tax Credit Program and the enhanced I.R.C. § 179 Expensing Program. The PATH Act further extends other key tax incentives, including the Bonus Depreciation Program and the New Markets Tax Credit Program for five years while reinstating other significant tax incentives for two years. The PATH Act also imposes a two-year suspension on the ACA Medical Device Excise Tax.
The subsequent synopsis will serve as a practical overview of just some of the many far-reaching changes enacted by the PATH Act affecting both business entities and individuals including, but certainly not limited to:
The R&D Tax Credit Program: As a background, the R&D Tax Credit Program (hereinafter “RTC program”) was initially added to the U.S. Internal Revenue Code (hereinafter the “Code”) in 1981 through the Economic Recovery Tax Act of 1981 as a temporary provision of the Code. The RTC program had most recently expired on December 31, 2014. A tremendous paradigm shift to the RTC program was made possible through the PATH Act which not only renewed the RTC retroactively for all of calendar year 2015 but most importantly made the RTC program permanent. In addition, the enhanced RTC program has been considerably restructured to:
Allow eligible small businesses (i.e., $50 million or less in gross receipts) to claim the credit against the Alternative Minimum Tax (hereinafter “AMT”) for tax years beginning after December 31, 2015;
Allow eligible startup companies (i.e., those with less than $5 million in gross receipts and earning revenue for less than 5 years) to claim up to $250,000 of the credit against the company’s federal payroll tax for tax years beginning after December 31, 2015; and
Allow Alternative Simplified Credit (hereinafter “ASC”) filers an increase from 14% to 20% in benefit.
The American Opportunity Tax Credit Program: The PATH Act made permanent the American Opportunity Tax Credit Program (hereinafter “AOTC program”), an enhanced version of the Hope education credit. It should be duly recalled that the AOTC program had been previously scheduled to expire after 2017.
The I.R.C. § 179 Expensing Program: It should be duly recalled that the Pre-PATH Act dollar limit for the I.R.C. § 179 expensing for 2015 had reverted back to $ 25,000 with an investment limit of $ 200,000. However, the new PATH Act permanently sets forth theR.C. § 179 expensing limit at $ 500,000 with a $ 2 million overall investment limit before phase out in 2015 with both amounts being indexed for inflation commencing in 2016.
The Bonus Depreciation Program: The PATH Act extended the bonus depreciation program over 5 years under a phase-down schedule through 2019 as follows:
50% Bonus Depreciation for 2015 through 2017;
40% Bonus Depreciation for 2018; and
30% Bonus Depreciation for 2019.
The New Markets Tax Credit Program: The PATH Act extended the New Markets Tax Credit Program (hereinafter “NMTC”) over 5 years and authorized the allocation of $ 3.5 billion dollars of NMTC’s for each year from 2015 through 2019.
The I.R.C. § 179D Energy Tax Deduction for Building Envelope Efficiency Program: The I.R.C. § 179D Energy Tax Deduction for Building Envelope Efficiency Program has been extended for a 2 year period (i.e., retroactively to cover all of calendar year 2015 and prospectively to cover all of calendar year 2016). As a caveat, the revised qualifying building energy code standards have been increased from ASHRAE Standard 90.1-2001 to ASHRAE Standard 90.1-2007 for properties placed in service after December 31, 2015. The tax savings can be up to $1.80/sq. ft. for the installation of Energy-Efficient Lighting, Energy-Efficient HVAC systems, and Energy-Efficient Building Envelope systems in new or existing buildings.
A copy of the PATH Act and Legislative Tax Update related information can be downloaded for your reference at:
Please contact Peter Scalise to discuss the scope and application of the PATH Act or other Tax Updates and their impact on your upcoming 2015 tax return filing positions.
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