Some Tax Extensions Made Permanent (2016 TAX YEAR)

Some Extensions Made Permanent as 2016 Tax Season Begins

The nation’s tax season officially begins as scheduled on Tuesday, Jan. 19, 2016.

It seems every year Congress passes tax extenders legislation at the last minute. Congress once again extended dozens of temporary, constantly-expiring tax breaks for individuals and businesses for 2016. However, this year, there was one big difference. The omnibus tax and spending bill that Congress just passed makes more than one-third of these tax extensions permanent, including the research tax credit.

Tax extensions fall into three main categories: those affecting individuals, those affecting businesses, and energy-related tax provisions. Here are some of the most significant extensions:

Tax Extensions For Individuals

– Provisions for homeowners – The two largest provisions involve homeowners. One of these provisions exempts some homeowners from being taxed on the amount they receive in mortgage loan forgiveness. The other allows homeowners to count mortgage insurance premiums towards their mortgage interest deductions.
– Child tax credit – The threshold amount for determining whether a taxpayer is eligible for the refundable (or additional) Sec. 24 child tax credit is permanently set at $3,000.
– American opportunity tax credit (Sec. 25A) is made permanent.
– Earned income tax credit – The enhanced provisions of the Sec. 32 earned income credit are made permanent. These provisions include an increased amount for families with three or more children and an increased phaseout range for married taxpayers filing jointly.
– Permanent extensions also include Sec. 62(a)(2)(D) deduction for certain expenses of elementary and secondary school teachers up to $250 and Sec. 164(b)(5) that provides for a deduction for state and local general sales taxes (instead of a deduction for state and local income taxes).

Tax Extensions For Businesses

– Sec. 41 research and development credit – This provision provides a credit for qualified research expenses. The bill also modifies the credit so that eligible businesses with $50 million or less in gross receipts can claim the credit against their alternative minimum tax (AMT) liability.
– Sec. 45P employer wage credit – This provision refers to employees who are active duty members of the uniformed services, providing a credit for their employers for up to 20% of the eligible differential wage payments made while an eligible employee is serving on active duty.
– Sec. 168(e)(3)- This provision allows 15-year straight-line cost recovery for qualified leasehold
improvements, qualified restaurant buildings and improvements, and qualified retail improvements.
– Sec. 179 – This provision increases the $500,000 expense limit and $2 million phaseout threshold and an expanded definition of Sec. 179 property to include qualified real property. The bill also eliminates the $250,000 cap on qualified real property.
– Sec. 1202 – This provision provides an exclusion of 100% of gain on certain small business stock.
– Sec. 1374(d)(7) – This provision reduces the S corporation recognition period for built-in gains tax to five years.

Other extensions passed concern charitable giving and energy tax incentives (mainly related to electric vehicles, biodiesel, renewable energy, and residential energy equipment).