Press Room: Tax Release

December 21, 2015

Congress Approves and President Signs Massive Extenders Package Including Select Permanent Business and Individual Provisions

Congress approved and President Obama signed the Protecting Americans from Tax Hikes of 2015 Act that makes permanent select provisions that expired at the end of last year, renews a handful of provisions for five years, and extends dozens of other provisions through 2016. The legislation also temporarily suspends the medical device excise tax for 2016 and 2017. The legislation is estimated to reduce federal receipts by $622 billion or more between 2016 and 2025. 

Permanent Provisions

The legislation makes permanent the following key provisions (among others):

  • The research and experimentation credit;
  • Exclusion of 100% gain on certain small business stock;
  • Increased expensing limits under Internal Revenue Code Sec. 179;
  • The reduced recognition period for S corporation built-in gains tax and basis adjustment for S corporations making charitable contributions of inventory;
  • The subpart F exception for active financing income;
  • 15-year straight-line cost recovery period for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements;
  • The minimum 9% low-income housing tax credit rate;
  • Tax-free treatment of distributions from individual retirement plans by individuals age 70-1/2 and older for charitable purposes;
  • The special rules for contributions of capital gain real property made for conservation purposes;
  • The enhanced charitable deduction for contributions of food inventory for businesses (in addition to C corporations);
  • Itemized deduction for state and local general sales taxes in lieu of income taxes; and
  • Enhancements to the earned income tax credit and child tax credit.

Five-Year Extensions to 2019

Several other business provisions are not made permanent but receive five-year extensions:

  • Bonus depreciation phased down over five years and sunsetting in 2020. The agreement provides for 50% bonus depreciation in 2015, 2016, and 2017; 40% in 2018; and 30% in 2019;
  • CFC look-through rule;
  • The new markets tax credit;
  • The work opportunity tax credit; and
  • A five-year extension and phase down of the production tax credit is included in the omnibus spending package signed by President Obama.

Two-Year Extensions to 2016

Other now-expired traditional extenders that were not made permanent or extended for five years are renewed retroactively through the end of 2016. 

Other Provisions

The legislation also includes provisions that overhaul the rules governing the tax treatment of REITS, liberalize the rules governing tax-preferred Sec. 529 education accounts and make reforms to IRS operations. 

The Takeaway

By making permanent a substantial number of expired tax provisions, the legislation provides increased tax certainty for businesses and individuals. At the same time, provisions that were extended only to 2016 may face an uphill battle for further extension. The legislation helps the math of tax reform in the future by subtracting over $600 billion in lost revenues from the baseline revenues against which tax reform legislation would be measured. Please contact your Andersen Tax advisor if you would like to discuss the impact of legislation and legislative proposals on your business and strategies to provide a voice on pending legislation being considered by Congress.