Protecting Americans from Tax Hikes Act of 2015 (aka PATH Act)

On December 18 last year, the above named act was signed into law. The PATH Act made permanent dozens of provisions which were set to expire. These provisions are no longer subject to expiration. This is not to be taken as tax or legal advice but merely to focus a light on the possibilities which exist for tax and legal planning toward the end of the year. Here is a sampling of the newly permanent benefits which might be of interest to different taxpayers.

1. Above the Line Deduction for Teachers’ Classroom Expenses. Kindergarten thru 12 grade teachers can deduct up to $250 of unreimbursed expenses relating to books, equipment, supplies and even some software. While that does not sound like a lot to many educators, just remember the old adage, “it all adds up” or “a nickel richer.”

2. Deduction of Mortgage Insurance Premiums. 2006 Legislation created an itemized deduction for premiums paid or accrued on qualified mortgage insurance. Generally, this type of insurance is acquired in connection with debt on a qualified residence.

3. Qualified Charitable Distributions from IRAs. In years past, persons age 70 ½ or older can exclude from gross income up to $100,0000 in “qualified charitable distributions” from either a traditional IRA or a Roth IRA. These distributions are not deductible as charitable contributions, but the exclusion from gross income is even a better result for the taxpayer. A qualified charitable distribution is any distributions from an IRA made by the trustee directly to the public charity.

4. College Tuition. Through 2016 there continues to be an above the line deduction for “qualified tuition and related expenses”. The deduction limit is $4,000 with the full deduction only available to taxpayers with adjusted gross incomes of $65,000 or less (or $130,000 for married filing jointly). If income exceeds the aforementioned limits then the maximum deduction is $2,000.

5. Conservation Easements. The limitations for contributions of property for purposes of conservation have also been expanded. It used to be in exchanged for placing qualified property into conservation like a land trust, the taxpayer could deduct 30% for any one year and carryover up to five years. Now, the he or she may deduct up to 50% of his or her contribution base with a carryover of 15 years. If he or she is what is a called a “qualified farmer or rancher” the 50% limitation increases to 100% with the 15 year carryover. To be “qualified”, the farmer or rancher’s gross income from farming or ranching concerns must exceed 50% of their total gross income. You can see where there may be opportunity for planning in situations where the taxpayer does not have an aversion to these types of conservation efforts.

These are just a few expansions available to individual taxpayers. The purpose of this article is not for tax or legal advice. Again, we are simply focusing a light on the possibilities which exist for tax and legal planning as we come toward the end of another tax year. All readers should consult with an independent professional prior to taking any action. We hope your fall continues to be wonderful as you bring in your harvest.