Tax Extenders Legislation
Dec. 18, 2015
President Barack Obama is expected to sign legislation that would extend many popular tax breaks that expired on Dec. 31, 2014. Some of the expired provisions will be made permanent. Others will be extended but not made permanent. All of the extenders will be retroactive to Jan. 1, 2015. The legislation also will make changes affecting real estate investment trusts (REIT) and captive insurance companies.
Selected Permanent Extensions
The items to be permanently extended include:
- Business Provisions
- The research credit. Beginning in 2016, eligible small businesses (those with $50 million or less in gross receipts) may claim the credit against alternative minimum tax liability, and the credit can be used by certain small businesses (startups with $5 million or less in gross receipts) against the employer’s Federal Insurance Contributions Act payroll tax liability.
- 15-year recovery period for qualified leasehold improvements, qualified restaurant property, and qualified retail improvement property.
- $500,000 Section 179 small-business expensing limitation with phaseout as fixed-asset purchases exceed $2 million.
- The increase of the Section 179 limit for qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property is permanent.
- $250,000 allowed in 2015
- $500,000 allowed beginning in 2016
- The $500,000 limit and $2 million threshold are indexed for inflation beginning in 2016.
- Air-conditioning and heating units are eligible for Section 179 expense beginning in 2016.
- 100 percent exclusion for gains recognized on Section1202 small-business stock.
- S-corporation built-in gains taxation period reduced to 5 years.
- Subpart F exception for active financing income.
- Individual Provisions
- Deduction for state and local sales taxes
- Contributions of capital gain property for conservation purposes
- Tax-free distributions from individual retirement accounts for charitable purposes
Selected Temporary Extensions
- Bonus depreciation will be extended through 2019 with the following modifications:
- 50 percent for property placed in service during 2015, 2016, and 2017
- 40 percent in 2018
- 30 percent in 2019
- Work opportunity tax credit (WOTC) will be extended through 2019
- A new class of workers, those who have been unemployed for 27 weeks or more, will be eligible for WOTC beginning in 2016. Employers of these workers will be eligible for a credit equal to 40 percent of the first $6,000 of wages.
- New markets tax credit will be extended through 2019
- Moratorium on medical device excise tax for 2016 and 2017
- Section 179D energy-efficient commercial building deduction extended through 2016
- Alternative fuels excise tax credit will be extended through 2016
- Controlled foreign corporations look-through provisions will be extended through 2019
The legislation will prohibit a company from making a REIT election following a Section 355 spinoff. This generally will be applicable to spinoffs on or after Dec. 7, 2015.
Captive Insurance Provisions
The annual premium limit for Section 831(b) small captive rules will increase from $1.2 million to $2.2 million in 2017. The legislation also will make technical changes to the Section 831(b) rules that may affect captives when the ownership interest held in the captive by younger family members or the spouse of the business owner exceeds their ownership interests in the insured businesses.
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