The tax extenders were passed in the Protecting Americans From Tax Hikes Act (Act) early in 2016, and consisted of permanent, five-year, and two-year extenders. These provisions are estimated to cost U.S. $629 billion over ten years, and came as a welcome relief after months of uncertainty leading up to the enactment of the Act.

Insofar as impacts on 2015 U.S. income tax returns go, the following is a summary of the extenders which affect those returns.

The permanent extenders mainly affect U.S.-situs depreciable assets, including the method for depreciating qualified leasehold improvements, qualified restaurant buildings and improvements and qualified retail improvements, section 179 depreciation, charitable contributions, the exclusion of gain on certain small business stock, and built-in-gains tax on S-corporation conversion.

Other provisions made permanent include the deduction for educator expenses, which will be indexed for inflation for years beginning in 2016, alignment of the exclusion for employer-provided mass transit and parking benefits, and a permanent extension allowing taxpayers the choice of taking a deduction for either state and local general sales tax or state and local income taxes.

Tax credits permanently extended include the child tax credit, the earned income tax credit and the American Opportunity tax credit.

The refundable amount of the child tax credit has been permanently set at US$3,000 in the aggregate, previously US$10,000.  No retroactive claims are allowed. If an income tax return is filed without the credit, the IRS will not allow a credit on any amended return which is filed to claim the credit if this is done due to not having had a taxpayer identification number for the child at the time of filing the original return.

Business credits including the R & D credit for qualified research expenses, and the employer wage credit for certain qualifying employers were also permanently extended.

Only two tax attributes were extended for five years; the work opportunity credit for employers with eligible employees, and a certain type of depreciation called bonus depreciation, through which a taxpayer can claim 50% of the basis of qualifying property in the first year the property is placed in service.

Two-year extenders included the exclusion of discharge from qualified principal residence indebtedness income from gross income, treatment of mortgage insurance premiums as qualified residence interest, and the above the line deduction for qualified tuition and related expenses.

Also under the two-year extenders were energy-efficiency related credits and deductions for qualifying new homes, commercial buildings and energy efficient vehicles,

For U.S. citizens residing outside the United States with no U.S.-situs property or businesses, there is little in the tax extenders’ legislation to affect their 2015 returns.

By Gina Wallace, Director, NZ US Tax Specialists Limited

This article provides general information, current at the time of publication. The information contained in this article does not constitute advice and should not be relied upon as such. Professional advice should be sought prior to actions being taken based on the information contained in this article.

NZ US Tax Specialists Ltd disclaims all responsibility and liability (including, without limitation, for any direct or indirect consequential costs, loss or damage or loss of profits) arising from anything done or omitted to be done by any party in reliance, whether wholly or partially, on any of the information. Any party that relies on the information does so at its own risk.