Individual Tax Extenders: PATH Act Makes Significant Changes to Popular Federal Tax Breaks

Posted by Marcelo Morinigo

13561691903_e99bc7d4bc_mAfter long hours of negotiations, Congress passed the first significant tax legislation since the passage of the American Tax Relief Act of 2012 (ATRA). The Protecting Americans from Tax Hikes Act of 2015 (PATH Act) modifies numerous tax provisions which are normally extended for only one or two years at the time. Several key temporary tax incentives for individuals became permanent right intime for the holiday festivities.

Students across the U.S. welcomed the changes made to the American Opportunity Tax Credit (AOTC), which was set to expire in 2017. This generous tax credit is now permanent.  The American Opportunity Tax Credit, an enhanced version of the Hope Education Credit, is a credit for qualified education expenses paid for an eligible student for the first four years of higher education.  Students can be eligible for a maximum annual credit of $2,500.

PATH Act also permanently extended deductions for charitable contributions from IRAs. The provision allows individuals age 70 ½ and older to make tax-free distributions from individual retirement accounts (IRAs) to qualified organizations. The deduction continues to be capped at a maximum of $100,000 per taxpayer each year.

Parents also received an early present after the Child Tax Credit became permanent. This credit allows individuals to claim a $1,000 tax credit for each qualifying child under age 17 that the taxpayer can claim as a dependent. The Act also makes permanent the reduced earned income threshold amount of an unindexed $3,000. This provision was also set to expire after 2017.

One of the most widely used itemized deductions, state and local general sales and use tax deduction also became part of the numerous tax breaks that lost their temporary nature. This tax deduction is very valuable even for individuals who live in states without an individual income tax, such as Florida. Taxpayers who purchase big ticket items such as vehicles or other goods subject to sales tax can rest assured this tax benefit is now permanent.

Teachers will finally stop wondering whether the Teachers Classroom Expense Deduction will be available. The Act permanently extends the above-the-line deduction for elementary and secondary school teachers’ classroom expenses. It also modifies the deduction by indexing the $250 ceiling amount for inflation beginning in 2016. Additionally, the Act includes professional development expenses within the scope of the deduction.

Additionally, the enhanced Earned Income Tax Credit, the Liberalized Rules for Qualified Conservation Contributions, and the increase in Excluded Employer-Provided Mass Transit and Parking Benefits were made permanent.

Finally, the Exclusion for Discharged Home Mortgage Debt (up to $2 million), Mortgage Insurance Premiums as Deductible Qualified Residence Interests and the Above-the-Line Deduction for Higher Education Expenses were extended retroactively and made available through 2016.

If you are interested in learning more about how these tax extenders can help maximize all available tax savings, please contact one of our tax advisors for any questions or assistance.

Photo by Steve Corey (License)

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