On December 18th, Congress and the President once again agreed to a deal on the tax “extenders” that had expired at the end of 2014 in a piece of legislation called the Protecting Americans from Tax Hikes (PATH) Act of 2015. However, unlike past tax extenders legislation which would extend these provisions for only a single year, PATH makes most of these provisions permanent.
This is welcome news for taxpayers, many of whom were left scrambling at the end of each year to take advantage of some of these provisions. This finally provides some much-needed stability in the Tax Code, allowing taxpayers and their advisors to make more educated and thoughtful tax planning decisions.
Below is a summary of just a few of the provisions that impact individual taxpayers. In a second article, we will cover the business-related provisions.
Individual Provisions
- American Opportunity Tax Credit – Permanent
- Up to $2,500 per eligible student is allowed as a credit, which will reduce the tax you owe dollar for dollar.
- If you are getting a refund, $1,000 of the credit is refundable per eligible student. Before PATH, this provision was set to expire in 2017.
- Deduction for state and local sales tax paid – Permanent
- Individuals may either deduct state and local income taxes paid or sales taxes paid.
- Before the passing of PATH, the deduction for the sales tax would have expired with the 2014 tax year.
- For Floridians, this would have meant no deduction in 2015.
- Charitable deduction for distributions made from IRAs – Permanent
- Retirees required to take Required Minimum Distributions (RMDs), at least 70 ½, may continue to make tax-free RMDs to qualified charitable organizations.
- The maximum contribution amount is $100,000 per year from IRAs.
- Education Expense Deduction – Permanent
- All of the school teachers should be somewhat relieved to know that the “above-the-line” deduction for eligible expenses of elementary and secondary school teachers has been made permanent.
- Beginning for the 2016 tax year, the deduction will be indexed for inflation.
- For 2015 the deduction is limited to $250.
- “Above-the-line” deduction for qualified tuition and related expenses – Extended Two Years
- The deduction is up to $4,000 and may benefit individuals unable to qualify for other educational credits, such as the American Opportunity Tax Credit above.
- Before PATH, this deduction was available through December 31, 2014.
- Deduction for mortgage insurance premiums paid – Extended Two Years
- Individuals may continue to deduct mortgage insurance premiums paid in connection with a qualified residence through December 31, 2016.
- Exclusion of Discharge of Indebtedness Income on Principle Residence – Extended Two Years
- May exclude up to $2 million from gross income when mortgage debt is canceled on an individual’s principal residence.
- In addition, if the indebtedness is canceled in 2017 pursuant to an agreement made in 2016, the cancellation is still excludable.
There are several other provisions that have been impacted by this legislation but are beyond the scope of this article. For questions about your specific tax situation and concerns, call and speak to a professional with Schanel & Associates at 561-624-2118.