Tax Tip Corner

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Current Tip (s)

Mileage Rates

The IRS has released the 2016 standard mileage rates for taxpayers to use in computing the deductible costs of operating an automobile for business, charitable, medical, or moving expense purposes. The following chart reflects the new 2016 standard mileage rates compared to the 2015 and 2014 tax year standard mileage rates.

                                                                                               2016               2015               2014

Business rate per mile                                           54.0¢                57.5¢                 56.0¢

Medical and moving rate per mile                  19.0¢                 23.0¢                23.5¢

Charitable rate per mile                                       14.0¢                 14.0¢                14.0¢

Depreciation rate per mile                                  24.0¢                24.0¢                22.0¢

 

Tax Extenders—Tax Year 2015

On December 18, 2015, the President signed into law the Protecting Americans from Tax Hikes Act of 2015 (PATH Act). The new law extends several tax provisions retroactive to the beginning of 2015, and also makes some provisions permanent.

 

Additional Child Tax Credit

The refundable portion of the Child Tax Credit had an income threshold amount of $10,000, indexed for inflation. The extender legislation permanently sets the threshold at an unindexed $3,000, which will allow for a higher credit for taxpayers who qualify.

 

Enhanced American Opportunity Tax Credit (Hope Credit)

The American Opportunity Tax Credit (AOTC) is an enhanced version of the Hope Credit, allowing a credit of up to $2,500 for four years of post-secondary education. The new law makes the enhanced AOTC permanent.

 

Enhanced Earned Income Credit (EIC)

As an extender item, the EIC credit amount was temporarily increased for taxpayers with three or more children, and the marriage penalty was reduced by increasing phase-out ranges. The new law makes the enhanced EIC permanent.

 

Educator Expenses

The new law makes the adjustment to income for qualified expenses of elementary and secondary school teachers permanent. The law also indexes the current expense cap of $250 for inflation beginning in 2016.

 

State and Local General Sales Taxes

The provision allowing an itemized deduction for state and local general sales taxes instead of state and local income taxes on Schedule A, Form 1040, expired and was extended several times in the past. The new law makes the provision permanent.

 

Charitable contributions of IRA distributions

A qualified charitable contribution (QCD) from an IRA is nontaxable if made directly to an eligible charitable organization. This lowers the taxpayer’s AGI, reducing the negative effect of AGI phase-outs. A QCD was dependent on extender legislation in prior years. The new law makes the provision permanent.

 

Qualified Leasehold Improvements

Recovery periods for qualified leasehold improvements, restaurant buildings and improvements, and retail buildings and improvements were temporarily set at 15 years under extender legislation instead of requiring longer recovery periods. The 15-year recovery period for these assets was made permanent.

 

Enhanced Section 179 expense

A temporary Section 179 expense limit of $500,000 and investment limit of $2 million before phase-out was made permanent. Note: Beginning in 2016, the $250,000 cap on the Section 179 expense for qualified real property was eliminated. The provision allowing a Section 179 expense for off-the-shelf computer software was also made permanent.

 

Special Depreciation Allowance

The provision extends the special depreciation allowance for property acquired and placed in service during 2015 through 2019. The special depreciation percentage is 50% for property placed in service during 2015, 2016, and 2017, and phases down to 40% in 2018 and 30% in 2019.

 

Discharge of Principal Residence Indebtedness

The provision allowing exclusion from income for discharge of qualified principal residence indebtedness was extended through 2016.

 

Itemized deduction for Mortgage Insurance Premiums

The provision allowing mortgage insurance premiums to be deducted as an itemized deduction on Schedule A of Form 1040 was extended through 2016.

 

Tuition and Fees Deduction

The provision allowing an above-the-line deduction for tuition and fees paid for the taxpayer, spouse, or dependents and claimed as an adjustment to income, was extended through 2016.

 

Nonbusiness Energy Property

The credit for purchases of nonbusiness energy property was extended through 2016.