Last week the House passed the Protecting Americans from Tax Hikes Act – bipartisan legislation that was then signed into law by the President on Friday. This act offers more permanent solutions for many taxpayers, extends temporary provisions and provides updated tax relief.
Highlights from the PATH Act
Individuals
- The deduction for state and local sales taxes was made permanent.
- Excludes the discharge of indebtedness on a qualified personal residence from gross income.
- Rollovers from 401(k)s to SIMPLE IRA plans are now permitted.
Charities
- Conservation easements are now permanent.
- People over 70.5 years may make tax-free distributions from IRAs directly to charitable organizations now knowing that this provision is also permanent. These distributions are limited to $100,000 annually. The distributions count for required minimum distribution (RMD) purposes.
Businesses
- Businesses with gross receipts under $50 million are now permanently free to use the research and development (R&D) credit to offset the Alternative Minimum Tax (AMT). Some startups will be able to use the R&D credit to offset payroll taxes.
- Fifteen-year straight-line cost recovery (rather than 39-year recovery life) for certain qualified leasehold improvements for certain retail and restaurant improvements are now permanent.
- Section 179 is now permanent, meaning that up to $500,000 of qualifying asset acquisitions are immediately deductible, with a phase-out beginning at $2 million. The $500,000 is indexed for inflation.
- 100% exclusion of gains on the sale of Section 1202 stock (qualifying small business stock aka QSBS) held for more than five years.
- For C corps that are considering making an S corp election, the corporation will only be subject to corporate-level tax on gains of appreciated assets for five years rather than ten following the election.
The PATH Act includes additional provisions beyond these highlights. If you have questions about how the PATH Act impacts you or your business, please contact Nick Reister or the Trust & Estates and Business attorneys of Smith Haughey.