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Client Alert: Top 7 Provisions of the Protecting Americans from Tax Hikes Act

On December 18, 2015, President Obama signed into law the Protecting Americans from Tax Hikes Act of 2015, commonly referred to as the “tax extenders”. To kick off the new year, here is a brief summary of the top 7 provisions of the Act that we think are relevant to financial institutions. Please contact us (information below) for more details.

Number 7
Cadillac Tax: The effective date of the “Cadillac tax”, which adds a 40% excise tax for high cost employer-sponsored health plans, was delayed until tax years beginning after December 31, 2019.

Number 6
Solar Tax Credits: The solar tax credit was extended for construction beginning before January 1, 2022, but will be phased out. The phase-out is as follows: for construction that begins after December 31, 2019, and before January 1, 2021, the percentage is 26%; for construction that begins after December 31, 2020, and before January 1, 2022, the percentage is 22%; and for construction that begins after January 1, 2022, and which is not placed in service before January 1, 2024, the percentage is 10%.

Number 5
The Research Credit: The new law permanently extends the research credit and also retroactively reinstates it for amounts paid or incurred after December 31, 2014. Some fiscal year taxpayers that have already filed returns for years that included part of 2015 may wish to file amended returns to claim a refund. For eligible small businesses (those with gross receipts less than $50 million), credits determined for tax years beginning after December 31, 2015, can also offset the Alternative Minimum Tax.

Number 4
Qualified Zone Academy Bonds: These bonds are designed to allow low income populations to save interest on costs related to public financing for school renovations and related items. The Act provides national volume limitations of $400 million per year for 2011 through 2016.

Number 3
New Markets Tax Credit (NMTC): The NMTC for qualified equity investments in community development entities was retroactively extended through 2019 and also provides for a carryover period through 2024.

Number 2
Bonus Depreciation: The Act extends bonus depreciation on qualified property acquired and placed into service during 2015. Some fiscal year taxpayers that have already filed returns for years that included part of 2015 may wish to file amended returns to claim a refund. The “bonus” amounts are: 50% for qualified property placed into service in 2015 through 2017; 40% bonus depreciation for qualified property placed into service in 2018; and 30% bonus deprecation for qualified property placed into service in 2019.

And the number 1 item on our top 7 list goes to….

Number 1
Section 179: For tax years beginning after December 31, 2014, the Act reinstates the expensing limitation at $500,000 and the $2 million phase-outs; both are made permanent. For tax years beginning after December 31, 2015, these amounts are indexed for inflation. It should be noted that the de minimis safe harbor rules for expensing outlays in the recent tangible property regulations, if applicable, come before the section 179 rules (or bonus depreciation).

Honorable Mentions
What would a top 7 list be without some honorable mentions? Here are 2 noteworthy ones.

The Act extends the discharge of qualified principal residence home mortgage debt retroactively through 2016. And, lastly, the Act retroactively extends and makes permanent the recognition period for net recognized built-in gain as five years for S Corporations.

A note - when tax laws use the term “permanent”, they really mean permanent until they change their mind and revise the tax laws.

As a client of Wolf & Company, we are writing this alert to make you aware of these recent Federal tax changes. If you have any questions or if you would like a more in-depth analysis, please contact:
Jana B. Bacon, CPA, Member of the Firm, at 413-726-6854 or jbacon@wolfandco.com, or 
Charles J. Frago, CPA, Principal, at 413-726-6862 or cfrago@wolfandco.com, or 
Michael J. Rowe, CPA, Principal, at 617-428-5437 or mrowe@wolfandco.com