The 2015 Business Extender Law

By:
Stewart Berger, CPA
Published Date:
Mar 1, 2016

On Dec. 18, 2015, President Obama signed the “Protecting Americans from Tax Hikes Act of 2015” (PATH Act). Highlights of the law as it pertains to businesses are as follows:

Depreciation

For taxable years after 2014, the PATH Act increased the Section 179 limitation on the expensing deduction from $25,000 to $500,000 of qualifying property that is placed in service during the taxable year. The $500,000 amount is reduced by the amount by which the cost of qualifying property exceeds $2 million, although it cannot be reduced below zero. The $500,000 and $2 million amounts are indexed for inflation for taxable years beginning after 2015.

For taxable years beginning in 2015, the PATH Act makes permanent the ability to apply Section 179 expensing to qualified real property – which includes leasehold improvements - with a limit of $250,000. Section 179 may be used to deduct the costs of air conditioning and heating units for years after 2015. The $250,000 cap for qualified real property will be removed in 2016 and therefore, businesses may want to postpone large purchases of such property until 2016.

The PATH Act makes permanent the ability of a taxpayer to make or revoke a Section 179 election without the consent of the Commissioner.

The PATH Act retroactively extends and makes permanent the 15-year straight line method of depreciation for qualified leasehold improvements, qualified restaurant property, and qualified retail space improvements.

Research & Development Credit (R&D)

The PATH Act retroactively and permanently extends the R&D credit.  Beginning in 2016, eligible small businesses (having $50 million or less in gross receipts) may claim the credit against the alternative minimum tax liability, and can use the credit against the employer's payroll tax liability.

Qualified Small Business Capital Gain Exclusion

The PATH Act renewed and permanently restored the 100% capital gain exclusion for qualified small business stock, which expired on Dec. 31, 2014. For stock to qualify for this exemption, the shares of stock must be original issue and held for more than five years by a noncorporate taxpayer in a C corporation that operates as a trade or business.

S Corporation Built-In Gains Tax

When a C corporation converts to an S corporation,  it may be subject to a corporate-level tax on the “built-in gains” that exist beginning on the date of conversion. Prior to the PATH act, the recognition period was normally 10 years. Subsequent amendments reduced it temporarily to five years through 2014. The PATH Act makes the five-year recognition period permanent, and also retroactively applies this recognition period to tax years beginning in 2015.

Donations of Appreciated Property by S Corporations

The PATH Act retroactively restores and makes permanent the charitable basis rule for stock in an S corporation that makes charitable contributions of appreciated property.

Bonus Depreciation

The PATH Act retroactively extends bonus depreciation for new property that is placed in service from 2015 through 2019, with an additional year for certain assets with longer production periods. The bonus depreciation percentage is 50% for property placed in service during 2015 to 2017, and phases down to 40% and 30% for property placed in service in 2018 and 2019, respectively.

For new passenger automobiles and light trucks subject to the luxury automobile depreciation limitations, the bonus depreciation deduction  increases by $8,000 for vehicles placed in service through 2017, $6,400 for vehicles placed in service in 2018, and $4,800 for vehicles placed in service in 2019.

The PATH Act allows bonus depreciation for qualified improvement property placed in service after 2015, without regard to whether the property is subject to a lease. It also removes the previous requirement that the qualified improvement property must be placed in service more than three years after the date on which the building was placed in service.

The PATH Act extends the rule for the allocation of bonus depreciation to a long­term contract for five years to property placed in service before Jan. 1, 2020.

The PATH Act modifies and extends the election to increase the alternative minimum tax credit limitation in lieu of bonus depreciation for five years to property placed in service before Jan. 1, 2020. Unlike Section 179, bonus depreciation applies to new property acquired during the year.

Work Opportunity Tax Credit (WOTC)

The PATH Act extends the credit for five years (through Dec. 31, 2019) for all nine categories of eligible individuals. The PATH Act expands the WOTC to employers that hire individuals who are qualified recipients of long-term unemployment benefits.

New Markets Tax Credit

The PATH Act extends the New Markets Tax Credit (NMTC) Program to 2019, permitting up to $3.5 billion in qualified equity investments for each of the 2015-2019 calendar years. Any unused NMTC can be carried over through 2024.

Among the more common business extenders that the PATH Act extended for two years are:

-- empowerment zone incentives
-- film or television expensing
-- qualified zone academy bonds
-- three-year recovery for certain racehorses
-- railroad track maintenance credit
-- mine rescue training credit
-- Section 199 deduction for Puerto Rico
-- election to expense mine safety equipment
-- seven year recovery period for motor sports entertainment complexes.

The PATH Act includes the following energy extenders that are available to both individuals and businesses:

-- insulation credit
-- production tax credit
-- solar incentives
-- credit for energy efficient homes energy efficient commercial building property deduction

The act also allows a credit of up to 10% of qualifying expenses used for energy efficient equipment and systems, which is capped at $500.

The PATH Act also extends to 2016 certain energy provisions, such as:

-- credit for alternative fuel refueling property
-- biodiesel and renewal diesel incentives
-- special allowance for second generation biofuel plant property
-- credit for fuel cell vehicles
-- excise credits for alternative fuels

The PATH Act accelerates the filing of 1099-MISC and W-2s with the IRS or Social Security Administration. Beginning in 2016, Form 1099-MISC and W-2s must be filled by Jan. 31. The forms are no longer eligible for the extended March 31 filing date for electronically filed returns.

The 40% excise tax imposed on high cost employer-sponsored health care coverage (the “Cadillac tax”), which was to take effect for tax years beginning after 2017, was extended and will not take effect on tax years beginning after 2019.

The PATH Act extends the IRS authority to require truncated social security numbers on W-2s, and allows the Treasury Department to promulgate regulations requiring or permitting a truncated social security number on Form W-2.

The tax measures in the PATH Act are expansive, making permanent over 20 key tax provisions and impacting tax administration, family tax relief, and businesses across all economic sectors.  The Act contains provisions that are revenue producers – for example, excise tax credits, updated standards for energy efficient commercial buildings deductions, prevention of transfer of certain losses from tax indifferent parties, to mention a few . The net impact of the tax relief provisions over the revenue producers shows a net revenue loss of $622 billion.


berger1Stewart Berger, CPA, is a director in the tax and advisory service Departments of Prager Metis CPAs, LLC. Mr. Berger has over 30 years of accounting experience providing tax and estate services to corporations and high-net-worth individuals. He is also a member of the AICPA and NYSSCPA, in addition to the Society’s Closely Held and S Corporations Committee. Mr. Berger also co-authored a chapter in the Handbook of Budgeting, Sixth Edition published by John Wiley & Sons Inc. He can be reached at sberger@pragermetis.com or 212.643.0099.

 
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