Congress Passes Extender and Other Tax Legislation

• Date: 01 May 2016
• Author: Caroline D. Strobel
• DOI: http://doi.org/10.1002/jcaf.22166
• Published date: 01 May 2016

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© 2016 Wiley Periodicals, Inc.

Published online in Wiley Online Library (wileyonlinelibrary.com).

DOI 10.1002/jcaf.22166

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IRS

Congress Passes Extender and Other

Tax Legislation

Caroline D. Strobel

Congress passed the tax

extender bill in the last days

of 2015. The bill extends a

number of provisions that

expired at the end of 2014 and

also enacted some additional

tax legislation. The follow-

ing includes some of the more

important provisions.

PROVISIONS MADE

PERMANENT

The provision that allows

a taxpayer over the age of 70½

to make a qualified charitable

distribution of up to $100,000

directly from an individual

retirement account (IRA) to

a charity has been made per-

manent. The contribution to

the IRA is not allowed as a

charitable deduction, but the

distribution from the IRA is

not taxed as income either. The

distribution also counts as the

taxpayer’s required minimum

distribution for the year.

Taxpayers are allowed to

claim an itemized deduction

for either state income taxes

or state sales taxes. The state

sales tax deduction can be

determined by either adding

up the actual state sales taxes

paid and validated by receipts,

or they can use the IRS sales

tax deduction calculator, which

provides an estimate that can

be claimed as sales taxes paid

based on the taxpayer’s income

and zip code. This provision

provides a deduction for tax-

payers living in a state like

Washington or Florida, which

do not have state income taxes.

The American Opportunity

Tax Credit was set to revert back

to the less expansive Hope Schol-

arship Credit at the end of 2017.

This credit is now permanent.

The credit can be taken for up

to $2,500 per year for up to four

years of postsecondary educa-

tion. The adjusted gross income

(AGI) phase-out is $160,000 for

a married couple and $80,000 for

single individuals.

The child tax credit is a

$1,000 credit available for each

“qualifying child” in the house-

hold who is under the age of 17,

lives with the taxpayer, is claimed

as a dependent, and does not

provide for more than half of

their own support. It phases out

when AGI exceeds $110,000 for

married couples and $75,000 for

an individual. For lower income

individuals who do not even have

a tax liability of $1,000, the child

tax credit becomes a refundable

credit called the “additional child

tax credit,” which refunds 15% of

income over $3,000. Under the

“additional child tax credit,” the

limit on the credit remains $1,000.

Elementary and second-

ary schoolteachers are eligible

for a deduction of up to $250

in arriving at adjusted gross

income. The legislation indexes

the cap for inflation beginning

in 2016. Also in 2016, eligible

schoolteacher expenses have

been expanded to include pro-

fessional development expenses

in addition to in-classroom

schoolteacher supplies.

The Section 179 expensing

provision limits including the

$500,000 maximum deduc-

tion amount and the $2 mil-

lion threshold for phasing out

the deduction are retroactively

reinstated for 2015 and made

permanent. Special rules allow-

ing expensing deductions for

computer software and certain

qualified real property are also

made permanent. In addition,

the new rules index the $500,000

maximum deduction and the $2

million phase-out threshold for

inflation beginning in 2016.