What Is The PATH Act?

American Investment Planners LLC

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On December 18, 2015, the Protecting Americans from Tax Hikes Act (also referred to as the PATH Act for short), was officially signed into law. As a result, many popular tax breaks that people look for every year became permanent, with others also being retroactively extended. Though many of these tax breaks had initially expired at the end of 2014, thus not making all of them readily available to use when filing for 2015, those that have been extended and made permanent will certainly come into play as you plan for future tax seasons.


Permanent Tax Breaks 

As per the PATH Act, the following provisions have been made a permanent part of the federal tax code:

1. Classroom expense deduction: Teachers are permitted to deduct up to $250 in classroom expenses from 2015 - these deductions must be listed above the line on Form 1040 before the adjusted gross income. As of 2016, however, the amount has been indexed for inflation and may eventually include additional qualifying professional development expenses.
2. American opportunity tax credit: A credit of up to $2,500 for qualified higher-education expenses may be given for the first four years of a student's college experience.
3. Qualified charitable distributions (QCDs): Those who are 70 1/2 years of age and older are eligible to make tax-free qualified charitable distributions from their IRAs, with a total amount not to exceed $100,000 per year. These charitable distributions are to count towards these individuals' required minimum distribution.

Extended Tax Provisions

The following tax provisions have been extended through the year 2016 as a result of the PATH Act:

1. Energy credit: Those who have made energy-efficient home improvements can continue to receive a 10% credit for qualifying improvements, however, a total lifetime credit of $500 may not be exceeded.
2. Mortgage insurance premiums: Though they are subject to income phaseouts, tax payers may continue to deduct the premiums paid for qualified mortgage insurance as qualified residence interest - this can be filed for on Form 1040.
3. Qualified higher-education expenses: For those students who did not claim the American opportunity tax credit or the lifetime learning credit, the qualified higher-education expenses credit permits them to deduct up to $4,000 above the line on Form 1040. Similar to the mortgage insurance premiums credit, this is also subject to income phaseouts.

For a complete list of permanent and extended tax breaks, as well as for information about how Section 529 plans and small businesses will be affected, please be sure to check out the article "Hot Topic: PATH Act Makes Many Tax Breaks Permanent" in the February newsletter section of our website.

As a financial planning firm that assists clients nationwide, we at American Investment Planners LLC recognize how important it is to be on top of the latest laws and policy changes regarding taxes and various other financial circumstances. And since we are, we want to share that knowledge with you! If you're in need of assistance with tax planning or any other financial planning service, please do not hesitate to give us a call at (516) 932-5130 to learn how our team can help.

Above information courtesy of Emerald Connect.