Congress and the Administration approved the FY 2016 Consolidated Appropriations Act nearly two weeks ago, which will fund the federal government through September 30, 2016 to the tune of $1.149 trillion. The Omnibus bill includes $548 billion in defense spending, $58.8 billion for the War on Terror and $518 billion in non-defense spending. (Remember those spending caps in the Budget Control Act of 2011? Congress has long breezed past those every year). In addition, a $680 billion tax cut package passed as well, including most of the tax extenders we have become familiar with every year. Unlike past years, however, a few of them have been made permanent, inlcuding:
- Charitable giving: Seniors age 70 1/2 and older who are subject to an annual required minimum distribution from their IRA accounts can have the money paid (up to $100,000) directly to a qualified charity of their choice. This is a beneficial tax move for those who are concerned that their retirement income will be high enough to trigger the Social Security benefits tax. But the money must be paid directly to the charity. This benefit has been made permanent.
- Sales taxes: Taxpayers who itemize their deductions may claim deduct state and local income taxes rather than state and local income taxes (the option was available to all taxpayers, not just those in no income tax states).
- College: The American Opportunity Tax Credit allows a dollar-for-dollar tax credit of up to $2,500 per student per year for four years.
- R&D Tax Credit: Businesses with less than $50 million in gross receipts can take advantage of the R&D tax credit for qualified expenses.
- The enhanced Child Tax Credit and the enhanced Earned Income Tax Credit are also permanent.
- Small stock gains: Taxpayers can exclude up to 50% of the gain on the sale or exchange of qualified small business stock held more than 5 years. The 50% exclusion was increased to 75% for stock acquired after February 17, 2009, and up to 100% for stock acquired after September 27, 2010
Other tax extenders which were extended through December 2016 include:
- Private mortgage insurance: If you are paying for private mortgage insurance (PMI) on your home (required for homebuyers with less than 20% equity in their home), you can deduct those payments from your taxable income.
- Mortgage debt: If your lender canceled, forgave or restructured a debt for you in 2015, the income you saved from the discharge of that debt, up to $2 million, is not taxable this year.
Of course, there is one tax extender that should have been made permanent but wasn’t. Bonus depreciation which allowed for the 50% immediate expensing of property acquired and placed in service in the same year, will be permitted for three years, reduced in 2018 and then phased out by the end of 2019.
On another note, Kelly Phillips Erb at Forbes wrote about 10 other breaks in the tax extenders bill that are interesting, if not particulary helpful.