Allen Falke

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December 29, 2015
Congress and the President have passed long awaited tax legislation, called the Protecting Americans from Tax Hikes (PATH) Act of 2015.  Most of the legislation involves extending various tax provisions that expired on December 31, 2014. 
These changes will not affect everyone or every business, as many of the changes depend on income level and the way your business is structured, and we have highlighted some, but not all, of them below.  It is always recommended that you consult with your financial advisor and attorney when filing taxes.
Business Tax Breaks:
  • Credit for Research
    Credit for research has been permanently extended and can now also be used as a credit against other taxes.  Prior to the Act, the credit was not allowed for 2015.  Furthermore, for years which begin after December 31, 2015, the credit can be used against alternative minimum tax (AMT) if the eligible small business has gross receipts of less than $50,000,000.  Small startup businesses (less than $5,000,000 of gross receipts) may claim a credit of up to $250,000 against their FICA liability.

  • S Corporations and Built in Gains
    Generally an S corporation that was formerly a C corporation can be taxed at the corporate level for certain asset dispositions if the disposition occurred within 10 years of electing S corporation status (commonly referred to as the Built in Gains (BIG) tax).  Beginning in 2012, that period was reduced to 5 years, but this had expired for 2015.  The Act now allows for the reduced five-year period for 2015 and permanently provides for the reduction for future years.

  • Exclusion of Gain from Certain Small Business Stock
    Taxpayers were allowed to exclude from income certain gains recognized on the sale of qualified small business stock.  Under prior law, the exclusion was limited to 50% of the gain and a portion of the gain was subject to alternative minimum tax.  The Act provides that 100% of the gain will be excluded and no portion is subject to alternative minimum tax.

  • Expensing of Tangible Personal Property  
    Prior to 2015, businesses were allowed to immediately expense up to $500,000 of current year additions, subject to phase out beginning at $2,000,000.  Without the Act, the limit for 2015 was $25,000 with a phase out beginning at $200,000.  The Act, however, provides for a $500,000 maximum deduction and a phase out beginning at $2,000,000, and makes the higher limits permanent and indexes for inflation both amounts for years after 2015.

  • Qualified Leasehold Improvements for Restaurants and Retail Property 
    For property placed in service prior to January 1, 2015, qualified leasehold property was able to be depreciated over 15 years.  For property placed in service subsequent to January 1, 2015, the property was depreciated over a much longer 39 years.  The Act provides that qualified leasehold property can be depreciated over 15 years and has made this faster time period permanent. 
  • Bonus Depreciation
    Prior to the Act, a business could depreciate 50% of qualified property placed in service prior to January 1, 2015.  This provision has been extended by the Act through 2019.
Individual Provisions: 
Note:  these provisions have all been made permanent tax changes, and are subject to adjusted gross income limits.
  • Enhanced Child Tax Credit
    Individuals may receive a credit of up to $1,000 per qualifying child under 17. 

  • Enhanced American Opportunity Tax Credit
    Individuals may receive a credit of up to $1,800 for tuition and certain expenses related to the first two years of college.

  • Enhanced Earned Income Tax Credit
    The legislation allows for certain increases in the credit and an alleviation of the marriage penalty as it relates to the earned income tax credit. 

  • Educator Expenses Credit
    Elementary and secondary teachers are allowed an above the line deduction of up to $250 for supplies, books, and equipment used in the classroom.

  • State and Local Sales Tax Deduction
    An itemized deduction is allowed for the greater of sales tax or state income tax paid.  Prior to this legislation, individuals would have only been able to deduct state income tax.  This provision is helpful to those taxpayers who live in states with no income tax, or who have made large purchases. 

  • Qualified Conservation Easement Charitable Deduction
    A conservation restriction can be placed on property that may qualify for a charitable contribution income tax deduction.  For tax years before 2015, a taxpayer was allowed to take a deduction of up to 50% of their income (with some adjustments), or 100% of income for taxpayers who are qualified farmers, and carry forward the unused amount for up to 15 years.  Without this legislation, the limitations would have been reduced to 30% and 50% respectively and the carry forward limited to 5 years. 

  • Nontaxable IRA Transfers
    A taxpayer over 70 1/2 can make a direct transfer, up to $100,000, to a charity from an IRA and not report the distribution as income.  This is beneficial in lowering the taxpayer's adjusted gross income and reducing the amount by which certain credits and deductions would be phased out.  
  • Exclusion of Discharged Home Mortgage Debt
    Generally when a debt is reduced or forgiven it is income to the taxpayer.  For example, a reduction of mortgage principal by a lender would be income to the borrower.  For years prior to 2015, certain qualified principal residence debt discharge was excluded from income.  This exclusion was not available for 2015.  However the Act retroactively applied the exclusion for tax years after December 31, 2014 and it will not expire until the end of 2016.

  • Mortgage Insurance Premiums
    Prior to 2015, mortgage insurance premiums were allowed as a deduction for taxpayers who were below certain phase out limits.  This deduction was repealed for years after 2014.  The Act provided for the deduction in 2015 and 2016.

  • Higher Education Expenses
    Taxpayers whose income did not exceed certain thresholds were allowed to deduct, above the line, up to $4,000 of qualified higher education expenses.  The Act reinstates this deduction for 2015 and 2016.
If you have any questions as to whether or not these changes apply to you or your business, please feel free to contact Mirick O'Connell's Trust and Estates attorneys.

Trusts and Estates Group  

Mirick O'Connell

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Mirick O'Connell is a full-service law firm with offices in Worcester, Westborough and Boston, Massachusetts.  The Firm's principal practice groups include Business; Construction Law; Creditors' Rights, Bankruptcy and Reorganization; Elder Law; Family Law and Divorce; Health Law; Intellectual Property; Labor, Employment and Employee Benefits; Land Use and Environmental Law; Litigation; Personal Injury; Public and Municipal Law; and Trusts and Estates.
This client alert is intended to inform you of developments in the law and to provide information of general interest.  It is not intended to constitute legal advice regarding a client's specific legal issues and should not be relied upon as such.  This client alert may be considered advertising under the rules of the Massachusetts Supreme Judicial Court.