The House passed the Tax Extenders tax bill yesterday, and the Senate did so today. The legislation is expected to be signed into law by President Obama immediately. The extension of the tax benefits, which expired after 2014, was made retroactive to January 1, 2015.
Unlike past years, over twenty of the tax provisions – half affecting businesses, half individuals – have now been made permanent (rather than just being extended for a year or two). This gives taxpayers more certainty in their budgeting and tax planning going forward. Among the extenders that the package makes permanent are:
- Enhanced section 179 expensing of fixed asset additions. The $500,000-per-year level of recent years was supposed to return to only $25,000. The higher limit has not only been made permanent, but will be indexed for inflation in future years. Further, the rule that allowed only $250,000 of this to be used for qualified real property investments, such as leasehold improvements, has been eliminated (beginning in 2016);
- 15-year depreciation of qualified leasehold improvements (as well as qualified restaurant and retail improvement property). Without this law, these assets would have been depreciated over a 39-year life for tax purposes;
- The Research and Development credit (which has seen fifteen or more temporary extensions since 1981). Further, businesses with under $50 million of gross receipts will now be able to utilize this credit against the Alternative Minimum Tax, eliminating a barrier that prevented many companies (and their pass-through owners) from taking advantage of this credit;
- Optional deduction of state and local sales tax in lieu of income tax;
- An enhanced Earned Income Tax Credit;
- An enhanced Child Tax Credit;
- The $250 classroom-expense deduction for teachers;
- Parity for exclusion of employer-provided mass transit and parking benefits;
- Tax-free distributions of up to $100,000 from IRAs for charitable purposes (among other incentives for charitable giving); and
- An enhanced American Opportunity Tax Credit for college tuition.
Some other benefits have been extended for five years (through 2019), notably:
- Bonus depreciation. This will continue at its recent level of 50 percent for 2015, 2016, and 2017, and be phased down to 40 percent for 2018 and 30 percent for 2019;
- The Work Opportunity Tax Credit. Also, long-term unemployed individuals have been added to the group that entitle employers to this credit (40 percent of the first $6,000 of wages);
Most other tax provisions that expired after December 31, 2014, were revived for two years, through 2016. These include:
- An extension and modification of the exclusion of mortgage debt discharge;
- An extension of the above-the-line deduction for qualified tuition and related expenses; and
- Over a dozen incentives for energy production and conservation