Additional 2016 Updates

Just around last New Year’s, the President signed the PATH Act which provides considerably more legislation and tax savings than the typical tax extender legislation seen in prior years.  It made permanent over 20 key tax provisions, including the research tax credit, enhanced Section 179 expensing and the American Opportunity Tax Credit.  It also extended other provisions, including bonus depreciation, for five years and provided other extensions for two years. 

Eleventh-hour negotiations between the White House and Congress finally reached agreement on the tax bill, impacting nearly all individuals and businesses, across all sectors of the economy.  The Path Act of 2015 would end up being the last major tax bill of the Obama administration.  As in past years, the IRS conceded that late tax legislation would delay the start of filing season – in that regard, the IRS didn’t disappoint. 

State and Local Sales Tax Deductions:  The election to claim an itemized deduction for state and local general sales taxes, in lieu of deducting state and local income taxes was made permanent.  The provision is particularly valuable to taxpayers in states without an income tax.

American Opportunity Tax Credit:  The Act makes permanent the American Opportunity Tax Credit (AOTC) which had been slated to expire after 2017.  The AOTC is a $2,500 tax credit for college level tuition spending.

Teacher’s Classroom Expense Deduction:  The Act permanently extends the deduction for elementary and secondary school teachers’ classroom expenses in the amount of $250.00.  This also includes professional development expenses within the scope of the deduction.

Transit Benefits:  For tax years beginning in 2016, the inflation-adjusted monthly exclusion amount for transit passes and van pool benefits will be $255/month, in line with the inflation-adjusted amount for qualified parking.

Mortgage Debt Forgiveness:  The Act excludes from income cancellation of mortgage debt on a principal residence of up to $2 million through 2016.  Without an extension, debt that is forgiven through a foreclosure, short sale or loan modification could be treated as taxable income.

Mortgage Insurance Premium Deduction:  The measure treats mortgage insurance premiums as deductible interest that is qualified residence interest, subject to the AGI phase-out.  The Act extends this special treatment through 2016.

Section 179 Expensing:  The Act permanently sets the Code Sec. 179 expensing limit at $500,000 and also makes permanent the special rule allowing off the shelf computer software to be treated as Section 179 property.

Section 529 Plans:  Under the Act, the purchase of computer equipment and technology with a distribution from a Sec. 529 Plan is permanently considered a qualified expense.  This change for computer equipment applies to tax years beginning in 2015.

 

Matthew R. Horowitz, C.P.A.
(410) 312-7622 • email
10015 Old Columbia Rd. Suite B-215, Columbia, Maryland 21046