Tax Extenders: 2016 Tax Rule Updates

On December 18th, right before shutting down for the holidays, Congress has passed 50 major changes for the upcoming tax filing season. Some of the tax extenders will be quite important, while others may go by without much notice. We’re taking a look at the notable changes.

Permanent Tax Extenders

Some of the previously enacted temporary provisions, have been made permanent:

  • State and local sales tax deduction, an alternative to claiming state tax withholdings on the Schedule A, Itemized deductions, is now a permanent line item. It benefits not only people in states with no income tax, but also taxpayers whose state tax withholdings are not large, or certain AMT taxpayers.
  • The now permanent teacher’s expenses deduction of $250 is being enhanced to include professional development expenses, in addition to classroom supplies. But teachers will have to wait one more year before they can begin using this deduction for continuing education, as the enhancement is not effective until 2016.
  • IRC Section 179 was made permanent, with an expanded definition of what property qualifies. This will affect many taxpayers, especially small business owners. Limits on expensing tangible depreciable property have been raised dramatically, and offer a good year-end tax planning strategy.
  • 15-year cost recovery on qualified leasehold improvements is now permanent, and could mean big savings to small business owners.

Temporary Tax Extenders

Other temporary provisions have been retroactively applied to 2015 and extended into 2016:

  • Deduction for qualified tuition and related expenses has been extended and the American opportunity credit is now permanent. The new bill signed by the president earlier this year requires taxpayers to obtain a form 1098-T in order to claim certain educational tax benefits.
  • Mortgage insurance premiums are still treated as qualified interest deduction.
  • Cancelled debt on principal residence may still be excluded from gross income, provided certain criteria are met.
  • 50-percent bonus depreciation has been extended, but is getting slowly phased out. It applies to new equipment and lodging/real estate. It may be a wonderful year-end planning tool.

Another notable new entry, the creation of ABLE accounts (Achieve a Better Life Experience Act), are modeled after the State 529 Plans and could provide advantageous tax treatment of savings for disabled children.

It’s time to have the final consultation with your accountant before the year winds down. We are here to watch for new developments and help you get the most out of these changes.  Give us a call or schedule an appointment today.

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