Important Tax Law Changes for 2016

The House and Senate have passed, and the President has signed, the “Protecting Americans from Tax Hikes Act of 2015.”  What does this mean for taxpayers and businesses?  Read below for a summary of the key provisions and changes.

Permanent Changes

• Extension of Qualified Charitable Distributions (QCDs) – permanently extends the ability of individuals 70.5 or older to exclude from gross income up to $100,000 of IRA distributions if directed to qualified charities.
• Extension of deduction of State and local general sales tax – permanently extends the option to claim an itemized deduction for State and local general sales taxes in lieu of State and local income taxes.
• Enhanced American Opportunity Tax Credit (AOTC) – increases the credit for various tuition and related expenses to $2,500 for four years of post-secondary education and increases the phase-out amounts ($160,000 for married filing jointly).
• Extension of deductions for certain expenses of elementary and secondary school teachers – permanently extends the above the line deduction for eligible expenses of elementary and secondary school teachers (capped at $250, but indexed for inflation starting in 2016)
• Extension and modification of research credit – permanently extends the research and development (R&D) tax credit.
• Extension and modification of section 179 property – permanently extends the small business expensing limitation and phase-out amounts in effect from 2010 to 2014 ($500,000 and $2 million, respectively). These amounts will be indexed for inflation beginning in 2016.
• Extension of exclusion of 100% gain on certain small business stock – permanently extends the exclusion of 100% of the gain on certain small business stock for stock acquired and held for more than five years.

Other Extensions

• Extension and modification of bonus depreciation – extends bonus depreciation for property acquired and placed in service during 2015 through 2019. The bonus depreciation percentage is 50% for property placed in service in 2015, 2016 and 2017 and phases down, with 40% in 2018 and 30% in 2019.
• Extension and modification of exclusion from gross income of discharge of qualified principal residence indebtedness – extends through 2016 the exclusion of discharged qualified personal residence indebtedness. Also applies to indebtedness discharged in 2017 if pursuant to written agreement entered into in 2016.
• Extension of mortgage insurance premiums treated as qualified residence interest – extends through 2016 the treatment of qualified mortgage insurance premiums as interest for purposes of the mortgage interest deduction.
• Extension of above-the-line deduction for qualified tuition and related expenses – extends through 2016 the deduction for qualified tuition and related expenses for higher education, capped at $4,000 if AGI doesn’t exceed $130,000 (married filing jointly) or $2,000 if AGI doesn’t exceed $160,000 (married filing jointly).