Path Act of 2015 Tax Break Extensions for Individuals

 

On December 18, the President signed into law the Protecting Americans from Tax Hikes Act of 2015, (PATH Act). The new law retroactively extends many business tax breaks for the 2015 tax year. Many parts of this legislation bring consistency to annual tax planning by making previously temporary tax laws permanent. 

As a result of PATH, your taxes may be lower for 2015 than what they would otherwise have been without the new law, because the law extended several deductions and credits that had expired in 2014. The new law may even create an opportunity to lower your taxes further if you take advantage of these tax breaks between now and year-end.

 

The following are some of the more significant tax breaks to be extended.

 

State and Local General Sales Taxes Deduction

The election to deduct state and local general sales taxes (instead of state and local income taxes) as an itemized deduction had expired for tax years beginning after December 31, 2014. PATH retroactively and permanently extends the availability of this election for 2015 and future years.

 

Above-the-Line Deduction for Qualified Tuition and Related Expenses

For years before 2015, taxpayers with modified adjusted gross income below certain thresholds could deduct up to $4,000 of qualified education expenses paid during the year for themselves, their spouses, or their dependents. The maximum deduction was $4,000 for an individual whose adjusted gross income for the tax year did not exceed $65,000 ($130,000 in the case of a joint return), or $2,000 for other individuals whose adjusted gross income did not exceed $80,000 ($160,000 in the case of a joint return). For those with incomes above the maximum threshold, no deduction is allowed. PATH extends the availability of the deduction through the 2016 tax year.

 

Credit for Energy-Efficient Existing Homes

A taxpayer is allowed a 10-percent non-business energy property credit for the purchase of qualified energy efficiency improvements to existing homes. Additionally, a taxpayer can claim specified credits for the purchase of specific energy efficient property originally placed in service by the taxpayer during the tax year. There is a lifetime limitation of $500 on the total amount of non-business energy property credit that may be claimed. There are also dollar limitations on the amount of the credit that may be claimed for specific types of qualified energy efficiency improvements and residential energy property. This credit expired for any property placed in service after December 31, 2014. PATH extends the availability of the credit to property placed in service through the 2016 tax year.

 

Mortgage Insurance Premiums Treated as Qualified Residence Interest

A taxpayers' ability to treat qualified mortgage insurance as qualified residence interest expired for amounts paid or accrued after December 31, 2014, or for amounts properly allocable to any period after that date. PATH extends this treatment through the 2016 tax year.

 

Deduction for Expenses of Elementary and Secondary School Teachers

The rule that allowed elementary and secondary school teachers to deduct from gross income up to $250 of qualified expenses they paid during the year ($500 on a joint return if both spouses were eligible educators) has been permanently extended and will be indexed for inflation beginning in 2016.

 

Exclusion for Discharge of Qualified Principal Residence Indebtedness

For certain tax years before 2015, taxpayers could exclude from income the discharge of qualified principal residence debt. This provision was scheduled to expire for debt discharged after December 31, 2014. PATH extends the exclusion through the 2016 tax year.

 

Tax-Free Distributions from IRAs for Charitable Purposes

A qualified charitable distribution from an Individual Retirement Account (IRA) by individuals at least 70 1/2 years of age (up to $100,000 per taxpayer per year) may be excluded from income. PATH permanently extends the exclusion for qualifying distributions.

 

Contributions of Capital Gain Real Property Made for Conservation Purposes

An individual taxpayer's deduction for qualified conservation contributions is generally limited to 50 percent of the taxpayer's adjusted gross income (AGI), minus the taxpayer's deduction for all other charitable contributions. An enhanced 100 percent deduction is available for certain individual and corporate farmers and ranchers for contributions of property used in agriculture or livestock production. A qualified conservation contribution is a contribution of a real property interest to a qualified organization, exclusively for conservation purposes. PATH permanently extends these deductions for qualifying contributions.

 

Exclusion for Employer-Provided Transportation Benefits

The value of the qualified transportation benefits provided by an employer to an employee is excludable from the employee's gross income to the extent the value does not exceed certain dollar limitations. PATH permanently extends the maximum monthly exclusion amount for transit passes and van pool benefits so that these transportation benefits match the exclusion for qualified parking benefits.

 

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