Highlights of the PATH Act

1/1/2016 | Written by: Karen Reed, EA

With just days to go before the end of the year, Congress extended most of the tax breaks which were set to expire at the end of 2015 and expanded a number of other tax provisions. Some important new rules to be aware of this year include:

Individual Tax Provisions Made Permanent

  • State and local sales tax deduction: The state and local sales tax deduction can be taken in lieu of the state income tax deduction. This benefits taxpayers in states with no income tax and sometimes those who purchase “big ticket” items such as automobiles.
  • For taxpayers with children: The lower threshold for the refundable Child Tax Credit has been made permanent at $3,000.
  • Higher tuition tax credit: The enhanced American Opportunity Tax Credit of $2,500 is in place for qualified education expenses.
  • Deduction for teachers: The Teachers Classroom Expense Deduction of $250 allows educators to deduct supplies they bought for their classrooms. It will be indexed for inflation beginning in 2016. It also includes a teacher’s “professional development expenses.”
  • IRA charitable allocation: The Qualified Charitable Distribution allows those over the age of 70 and a half to make a charitable donation directly via trustee-to-trustee from an IRA account. Up to $100,000 of the distribution is tax free.

Individual Provisions Extended Through 2016

  • For homeowners facing foreclosure and short sale: The Qualified Principal Residence Indebtedness Exclusion provides relief for distressed homeowners facing foreclosure and short sale.
  • Deduction for mortgage insurance premiums: The Mortgage Insurance Premiums Deduction is a deduction for private mortgage insurance for homebuyers who put little to no money down when buying their home. Income restrictions apply.
  • Deduction for tuition and fees: The Tuition and Fees Deduction is a deduction for taxpayers (yourself, your spouse or dependents) with qualified education expenses. Income restrictions apply.
  • Energy efficient credit: Credit for energy efficient nonbusiness items such as windows and doors. Limits apply.
  • Businesses: The Section 179 limit remains at $500,000, and the 50 percent bonus depreciation applies to property placed in service through 2017.

Note that this is only a short list of some of the new tax rules for 2015 and beyond. Please take the time needed to learn the complete rules at IRS.gov.