In late December 2015, Congress passed the Protecting Americans from Tax Hikes, or PATH, act. The act extends many popular tax breaks to the 2015 tax year. In previous years most of these tax breaks only got a one year extension. This time Congress has made many of them permanent, and given some others two- or five-year extensions. Following are extensions and changes made to key provisions.

Business Extenders

• The research credit is made permanent. Beginning in 2016 eligible small businesses ($50 million or less in gross receipts) can use the research credit against alternative minimum tax (AMT) liability. Some smaller businesses can even apply the credit against the employer’s portion of the Social Security payroll tax. So, some businesses with research expenditures who previously couldn’t use the credit due to AMT or lack of taxable income will now get a benefit from it.
• The increased Section 179 expensing limit of $500,000 (phased out as eligible costs exceed $2 million) is made permanent. Section 179 allows businesses to expense the cost of certain fixed asset purchases in the current year, rather than depreciating the cost over a number of years.
• The new markets tax credit is extended through 2019.
• The employer wage credit for activated military reservists is made permanent. Beginning in 2016, the credit is available for employers of any size, rather than just those with 50 or fewer employees.
• The work opportunity tax credit is extended through 2019. Beginning in 2016 the credit is increased for certain long-term unemployed individuals.
• 15-year straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements is made permanent.
• 50% bonus depreciation is extended, but phases out. The rate is 50% for property placed in service in 2015 through 2017; 40% for property placed in service in 2018; 30% for property placed in service in 2019; and eliminated for property placed in service in 2020 and beyond. Note that these periods are moved back one year for certain property with long production periods.
• The enhanced charitable deduction for contributions of food inventory is made permanent. The gross income limitation is increased from 10% to 15%.
• The exclusion of gain on sale of certain small business stock is made permanent.
• Favorable basis adjustment for S corporations making charitable contributions of property is made permanent.
• The 5-year period for S corporation recognition of built-in gains is made permanent. It was previously 10 years.

Individual Extenders

• The American Opportunity Tax Credit, which provides up to $2,500 in partially refundable tax credits for post-secondary education, is made permanent.
• The $250 above-the-line deduction for teachers for expenses paid for certain supplies used in the classroom is made permanent, and will be indexed to inflation.
• The exclusion of up to $2 million ($1 million if married filing separately) of discharged principal residence indebtedness from gross income is extended through 2016. The new law also modifies the exclusion to apply to qualified principal residence indebtedness that is discharged in 2017, if the discharge is pursuant to a binding written agreement entered into in 2016.
• The deduction for mortgage insurance premiums deductible as qualified residence interest is extended through 2016.
• The option to take an itemized deduction for state and local general sales taxes instead of the itemized deduction permitted for State and local income taxes is made permanent.
• The ability to make tax-free distributions to charity from an individual retirement account (IRA) of up to $100,000 per taxpayer per tax year, by taxpayers age 70½ or older; made permanent.

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