Friday, December 18, 2015


I have waited to report on this until after it was signed into law, just to be safe.  I usually wait to talk about tax legislation until it is passed and signed, so I do not confuse readers with proposed tax law that may or may not be passed, or passed as originally proposed.
The idiots in both houses of Congress have passed the PATH Act of 2015, and it will be signed by BO any minute now, but I did not want to wait any longer to write about it.  {BO has signed the law - "Agreeing at last: Congress sends tax, spending bill to president; Obama signs", and also click here- rdf} 

It has nothing to do with taking an underground train from New Jersey to New York (although it does include a mass transit provision).  It is “The Protecting Americans from Tax Hikes Act of 2015”, which finally, once again at the very last minute, deals with the now infamous “tax extenders”.

This Act includes three tiers of extension for the 50+ annual tax extenders – permanent, from 2015 through 2016, and from 2015 through 2019.

The more popular, and perhaps less controversial, of the extenders have been made permanent.  And the more questionable, and less “deserving”, of the extenders are extended for 2015 and 2016 only.  These include a laundry list of industry-specific business tax benefits that were bought and paid for by lobbyists lining the pockets of legislators.

In addition, a few other tax benefits that were scheduled for expiration a couple of years down the road were also made permanent, mostly to appease the Democrats.  These benefits all include refundable tax credits, which are a magnet for tax fraud.

Here is a listing of the major components of the PATH Act that affect 1040 filers –

(A) Made Permanent (2015, 2016 and beyond) –

1. Tax Extenders:

a. Parity for Exclusion of Employer-Provided Mass Transit and Parking Benefits – makes the maximum monthly exclusion for transit passes and van pool benefits the same as the maximum exclusion for parking benefits.

b. Qualified Charitable Distributions – the ability of individuals age 70½ and older to exclude from gross income (and use to satisfy their Required Minimum Distribution or RMD) up to $100,000 in direct transfers from an IRA to a qualified charity. {unfortunately the unforgiveable procrastination of the idiots in Congress may have made it too late for most qualifying taxpayers to take advantage of the availability of this benefit for tax year 2015 – rdf}

c. Section 179 Expensing Limitations – the $500,000 maximum expense deduction for qualified business asset purchases and the $2 Million qualifying property threshold where reduction of the deduction begins.

d. Educator Expense Deduction – the above-the-line deduction for up to $250 in unreimbursed business expenses for K-12 teachers, counselors, principals, and aides.  Beginning in 2016 the maximum deduction will be indexed for inflation and will include professional development expenses.

e. Option to Deduct State and Local Sales Tax Instead of State and Local Income Tax.

2. Other Tax Benefits:

a.  American Opportunity Education Credit.

b.  Increased Additional Child Tax Credit.

c.  Increased Earned Income Credit.

(B) Extended January 1, 2015 Through December 31, 2016

1. Exclusion of up to $2 Million of Cancellation of Debt (COD) Income from Foreclosure of Principal Personal Residence. 

2. Deduction for Tuition and Fees – the above-the-line deduction of $4,000 or $2,000 of qualified tuition and fees for both undergraduate and graduate education.

3. Itemized Deduction for Mortgage Insurance Premiums 

4. Lifetime Maximum $500 Residential Energy Credit of 10% on Qualified Energy Efficient Purchases and Improvements.

(C) Extended January 1, 2015 Through December 31, 2019

The 50% Bonus Depreciation Deduction for Qualified Business Asset Purchases.

The bottom line is that we will no longer have to go through the nonsense each and every year of waiting until the last minute to know what is allowed on the Form 1040.  This will make year-round tax planning much easier, and also make the job of the IRS much easier.  The members of Congress are still idiots, but at least this time what they have done is, for the most part, a good thing.

The major 1040-related extenders, and I expect most if not all of the others, that expire in 2016 should expire in 2016.  The deduction for mortgage insurance premiums, which is basically life insurance, should never have been passed in the first place.  And I do not believe that homeowners who have made bad financial decisions should be rewarded by excluding “cancellation of debt” income on foreclosures.

The 4 extenders that expire in 2019 are all business-related benefits that do not affect most 1040 filers.

I still question the appropriateness of at least one of the extenders made permanent.  I am talking about the above-the line deduction for a very limited amount of “Educator Expenses”.  As I have said consistently in the past, this $38 - $70 gift from Uncle Sam is a nice nod to teachers, paying for a dinner out.  But why do teachers deserve this more than police officers or firefighters or nurses or EMTs or other public service employees?  There is no real reason why this should be made permanent.  Of course I will continue to claim this deduction for clients who qualify.       

The ACT also contains a few non-extender provisions –

1. Formally “legitimizing” the use of the “EA” credential by Enrolled Agents, a blow to the AICPA.

2. Higher education expenses that qualify for tax-free distributions from a Section 529 plan now include computer equipment and related expenses, such as computer software and internet access.

3. The effective date of the Obamacare 40% “Cadillac Tax” on high-cost company health care policies is changed from 2018 to 2020. 

4. Forms W-2, W-3, and returns or statements to report non-employee compensation (i.e. Form 1099-MISC) must now be filed with the government on or before January 31 of the year following the calendar year to which such returns relate.

5. Taxpayers claiming the American Opportunity Credit must report the Employer Identification Number (EIN) of the educational institution to which the taxpayer makes qualified payments under the credit beginning in tax year 2016.

6. Educational institutions are required to report only qualified tuition and related expenses actually paid, rather than choosing between amounts paid and amounts billed as is currently allowed (most institutions report only amounts billed), on Form 1098-T, beginning with calendar year 2016.  

The last item - #6 – is very important for us tax preparers.  It means that, beginning in 2016, the Form 1098-T students receive from colleges will actually provide important and needed information, and will no longer be as useful as “tits on a bull”.

Click here to read a section-by-section summary of the Act.



Anonymous said...

Can you post a link to proof that POTUS has signed into law?

Robert D Flach said...


I thought I saw a tweet that he had signed it. He has said he would.

I will provide a link when I find an official statement.