In one of its final actions for calendar year 2015, Congress passed the Consolidated Appropriations Act, 2016, a massive spending bill that will keep the federal government funded for fiscal year 2016. Signed into law on December 18, 2015, the legislation includes the Protecting Americans from Tax Hikes (PATH) Act of 2015, which addresses a host of popular but temporary tax provisions - commonly referred to as “tax extenders” - that had expired at the end of 2014, making many of them permanent. Some of the major provisions addressed are listed below.
American Opportunity Tax Credit: The American Opportunity Tax Credit (a modified version of the original Hope Credit) and the credit rules, including maximum credit amount, number of years of education covered, income phaseout ranges, and refundability provisions, are made permanent.
Child tax credit: The lower $3,000 earned income threshold for determining the refundable portion of the tax credit is made permanent (if the credit exceeds tax liability, an amount equal to 15% of earned income over $3,000 may be refunded).
Credit for nonbusiness energy property: The credit is extended for two additional years (through 2016); lifetime cap of $500 remains.
Deduction for classroom expenses paid by educators: The $250 above-the-line deduction is made permanent - the rules that applied in 2014 are retroactively extended for 2015; starting in 2016, the limit will be indexed for inflation, and qualifying professional development expenses will be considered eligible expenses for purposes of the deduction.
Deduction for qualified higher-education expenses: The above-the-line deduction, worth up to $4,000, is reinstated for 2015 and extended through 2016.
Deduction for state and local general sales taxes: Individuals who itemize deductions on Schedule A of IRS Form 1040 can elect to deduct state and local general sales taxes in lieu of the deduction for state and local income taxes - this is made permanent.
Discharge of qualified personal residence debt: The exclusion from gross income of the discharge of debt associated with a qualified principal residence is reinstated for 2015 and extended through 2016.
Earned income tax credit: The increased credit percentage for families with three or more qualifying children and the increased threshold phaseout range for married couples filing joint returns are made permanent.
Mortgage insurance premiums: The provision allowing premiums paid for qualified mortgage insurance to be treated as deductible qualified residence interest on Schedule A of IRS Form 1040 (subject to phaseout based on income) is extended for two additional years, through 2016.
Qualified charitable distributions (QCDs): The provision allowing individuals age 701/2 or older to make qualified charitable distributions (QCDs) from their IRAs, and exclude the distribution from gross income (up to $100,000 in a year), is made permanent.
Qualified conservation contributions of capital gain real property: Special rules for qualified conservation contributions of capital gain real property are made permanent; new rules for qualified contributions by certain Alaska Native Corporations are added for years after 2015.
In addition to the tax extender provisions, the Consolidated Appropriations Act contains other tax provisions, including:
- Rules relating to 529 plans are modified for tax years after 2014, including expansion of the definition of qualified expenses to include the purchase of a computer, peripheral equipment, computer software, and internet access if used primarily by the beneficiary while enrolled at an eligible education institution.
- The Act permits funds to be rolled over to a SIMPLE IRA from employer-sponsored retirement plans and traditional IRAs once a participant has participated in the SIMPLE IRA for a two-year period (effective for rollover contributions made after December 18, 2015).
If you would like to learn how these tax provisions may affect you, request a complimentary consultation with Retirement Advisors of America to discuss your financial outlook.
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