President signs into law funding and tax extender bills impacting a host of tax provisions.

Source: Larry Gerhardt, OSU Extension Specialists, Taxation

The following article contains excerpts from the December 21 RIA Weekly Tax Watch, Checkpoint, published by ThompsonReuters, Inc.

On December 18, Congress passed and the President signed into law the “Consolidated Appropriations Act, 2016” and “Protecting Americans from Tax Hikes (PATH) Act of 2015,” funding the government and providing a number of significant tax changes. The Senate, by a vote of 65-33, had passed this legislation earlier in the day. The House had passed the Consolidated Appropriations Act earlier in the morning, by a vote of 316 to 113, and had previously passed the PATH Act, by a vote of 318 to 109, on December 17.

Tax provisions in the PATH Act include: the retroactive extension of the 50 or so taxpayer-favorable tax ”extender”—temporary tax provisions that are routinely extended by Congress on a one- or two-year basis that had been expired since the end of 2014, making permanent more than a dozen individual and business extenders (including the enhanced child tax credit, American opportunity tax credit, and earned income tax credit, parity for exclusion from income for employer-provided mass transit and parking benefits, the deduction of State and local general sales taxes, the research credit, and 15-year straight-line cost recovery for qualified leasehold improvements . . . ).

Three tax provisions particularly relevant for agriculture are:

 Extension and modification of increased expensing limitations and treatment of certain real property as section 179 property. The provision permanently extends the small business expensing limitation and phase-out amounts in effect from 2010 to 2014 ($500,000 and $2 million, respectively). These amounts currently are $25,000 and $200,000, respectively. The special rules that allow expensing for computer software and qualified real property (qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property) also are permanently extended. The provision modifies the expensing limitation by indexing both the $500,000 and $2 million limits for inflation beginning in 2016 and by treating air conditioning and heating units placed in service in tax years beginning after 2015 as eligible for expensing. The provision further modifies the expensing limitation with respect to qualified real property by eliminating the $250,000 cap beginning in 2016.

 Extension and modification of bonus depreciation. The provision extends bonus depreciation for property acquired and placed in service during 2015 through 2019 (with an additional year for certain property with a longer production period). The bonus depreciation percentage is 50 percent for property placed in service during 2015, 2016 and 2017 and phases down, with 40 percent in 2018, and 30 percent in 2019. The provision continues to allow taxpayers to elect to accelerate the use of AMT credits in lieu of bonus depreciation under special rules for property placed in service during 2015. The provision modifies the AMT rules beginning in 2016 by increasing the amount of unused AMT credits that may be claimed in lieu of bonus depreciation. The provision also modifies bonus depreciation to include qualified improvement property and to permit certain trees, vines, and plants bearing fruit or nuts to be eligible for bonus depreciation when planted or grafted, rather than when placed in service.

 Extension and modification of research credit. The provision permanently extends the research and development (R&D) tax credit. Additionally, beginning in 2016 eligible small businesses ($50 million or less in gross receipts) may claim the credit against alternative minimum tax (AMT) liability, and the credit can be utilized by certain small businesses against the employer’s payroll tax (i.e., FICA) liability.

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