The “Protecting Americans from Tax Hikes Act of 2015” (PATH), signed into law by President Obama December 18, 2015, extends and now makes permanent some widely-used tax deductions. These tax deductions would have expired at the end of 2015, but for this new law.
- Section 179 Deduction. PATH makes permanent (and retroactive to the beginning of 2015) the expanded Section 179 expense election, which allows a taxpayer to expense in full (i.e. deduct), rather than depreciate over a number of years the cost of up to $500,000 in qualifying expenditures for a year, subject to a phase out for annual expenditures in excess of $2,000,000. The new rules also provide that these limits will be indexed for inflation.
- Conservation Easements. PATH also make permanent the current expanded qualified conservation easement rules, allowing a deduction of the fair market value of a qualified contribution up to 50% of a taxpayer’s contribution base (i.e., adjusted gross income, but disregarding any net operating loss carryback) over the amount of all other allowable charitable contributions, with the remainder eligible for carryover for up to 15 years. For qualified farmers and ranchers, the allowable deduction is 100%. This is a departure from the general rule for donations of appreciated property, which generally allows a deduction up to 30% of the contribution base with a 5-year carryforward.
- Charitable IRA Distributions. Since 2006, taxpayers who are over age 70 ½ had been permitted to make a “Qualified Charitable Distribution” of up to $100,000 directly from an IRA to a charity. The contribution to the charity, while not deductible, was not included in taxable income and counts towards the taxpayer’s Required Minimum Distribution (RMD) obligations. These rules had lapsed at the end of 2014, but PATH now reinstates this benefit permanently.
In addition to the above, PATH contains a number of other “extender” provisions, both temporary and permanent, that should please taxpayers, including to the American Opportunity Tax Credit (f/k/a the Hope Credit), to Section 529 plans, an exemption from the gift tax on contributions to certain Section 501(c) organizations, and the deduction for state and local sales taxes.