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Clock ticks down to year-end

Clock ticks down to year-end passage of tax extenders for individuals and businesses

As 2015 winds down, another temporary extension of the tax extenders appears almost certain. Despite talk in early 2015 about finding a permanent solution to the on-again, off-again extenders, the arrival of November brings a short window for Congress to extend these tax breaks. The expected late passage of these popular tax breaks also adds uncertainty to year-end tax planning as well as possibly causing a delay to the start of the 2016 filing season.

Tax extenders

A host of temporary but popular tax incentives expired after December 31, 2014. Under current law, these incentives are unavailable for 2015 (although a very small number, notably bonus depreciation, have special provisions that may make them available in 2015 to qualified taxpayers).

For individuals, the popular state and local sales tax deduction, higher education tuition and fees deduction, exclusion of cancellation indebtedness on principal residence, the Code Sec. 25C residential energy credit, charitable distributions from IRAs, and the teachers' classroom expense deduction, have all expired. Unless extended, taxpayers will not be able to claim these incentives when they file their 2015 returns in 2016.

For businesses, the list of expired extenders is lengthy. Along with enhanced expensing under Code Sec. 179, other expired extenders for businesses include:

  • New Markets Tax Credit;
  • Employer wage credit for activated military reservists;
  • Subpart F exceptions for active financing income;
  • Look-through rule for related controlled foreign corporation payments;
  • Railroad track maintenance credit;
  • Seven-year recovery period for motorsports entertainment complexes;
  • 100 percent exclusion for gain on sale of qualified small business stock;
  • Reduced recognition period for S corporation built-in gains tax;
  • Enhanced deduction for charitable contributions of food inventory;
  • Tax incentives for empowerment zones;
  • Indian employment credit;
  • Accelerated depreciation for business property on Indian reservations;
  • Special expensing rules for qualified film and television productions;
  • Mine rescue team training credit;
  • Election to expense advanced mine safety equipment;
  • Qualified zone academy bonds;
  • Low-income tax credits for non-federally subsidized new buildings;
  • Low-income housing tax credit treatment of military housing allowances;
  • Treatment of dividends of regulated investment companies (RICs);
  • Treatment of RICs as qualified investment entities;
  • S corporations making charitable donations of property; and
  • Economic development credit for American Samoa.

Pending legislation

A Senate bill, the Tax Relief Extension Act of 2015, may be the likely vehicle to extend the extenders. The Senate bill would extend the tax breaks for individuals and businesses for two years: 2015 and 2016 (retroactive to January 1, 2015 and through 2016). The Senate bill also tweaks some of the extenders. For example, the Senate bill adds the long-term unemployed to the list of eligible targeted groups for the Work Opportunity Tax Credit. The Senate bill also enhances the employer wage credit for activated military reservists, the special expensing rules for film and television, and transit benefits. Our office will keep you posted of developments as extenders legislation moves through Congress.

Not all expired

While taxpayers wait for action on the extenders. Some popular individual tax breaks are available for 2015. They include the American Opportunity Tax Credit (AOTC) (an enhanced version of the Hope education credit available through 2017) and the Code Sec. 25D energy efficiency credit (available through 2016). Additionally, the $1,000 child tax credit is permanent (although some the current provision that reduces the earnings threshold for the refundable portion of the child tax credit to $3,000 is only extended through 2017.). The student loan interest deduction and the child and dependent care credit are also permanent.