If you are the proud owner of a thoroughbred race horse, good news: Congress just extended a tax break for you that allows you to depreciate the old gal over three years instead of seven, at least through the end of 2016. That doesn't mean a trip to the glue factory any sooner, just a lighter tax bill for a select few doyens of the Sport of Kings.
Want to build a NASCAR track? If you made the expenditure in 2015 or 2016, you get to write off your investment in a "motorsports facility" over seven years instead of the 25 or 30 years afforded most businesses. Vroom.
Photo — Please put this mug shot of Chris Hopkins of Barnett & Co. in our system to use every other Wednesday when it will run with his column.And through the end of this year Congress extends tax revenue sharing on rum distilled in Puerto Rico and the Virgin Islands, whose governments turn around and share the subsidies with the distillers whose relocation to the islands was subsidized in order to increase their governments' share of a tax subsidy on rum distilled outside the islands. Clear? Pass the bottle.
These are a few of the more risible provisions of the risibly named "Protecting Americans from Tax Hikes" or PATH Act of 2015. In what has become biennial tradition, Congress routinely extends dozens of "temporary" tax breaks for a year or two to avoid counting the true long-term cost to taxpayers of a permanent abeyance. At the end of 2014, however, the clock ran out and no action was taken. Over 50 of these so-called "tax extenders" lapsed and have been off the table all year.
Last month, Congress moved on a number of these extenders and President Obama signed the final omnibus bill on Dec. 18. Rum subsidies are safe for another year.
In fairness, however, it should be noted that a number of these perennial favorites were actually made permanent this year, and unlike the examples above, many are relevant to average taxpayers and families.
Perhaps the biggest provision for small businesses is the permanent expansion of a first-year write-off for new and used equipment purchases. The PATH Act allows small businesses to expense up to $500,000 during the first year on a total investment up to $2 million. The act also provides a 5-year extension of accelerated bonus depreciation on new asset purchases.
Individuals stand to benefit as well from provisions in the act. One of the most popular of the previously expired provisions among wealthier retirees was the ability to make tax-free charitable contributions directly from traditional IRA accounts in lieu of mandatory distributions. The act restores this provision up to $100,000 per year for taxpayers over 70 1/2.
Lower income taxpayers benefit from the permanent extension of the American Opportunity Tax Credit. The AOTC provides for a tax credit of up to $2,500 for taxpayers with incomes below $80,000 or couples below $160,000. The bill also provides for enhanced Earned Income Tax Credits and Child Tax Credits subject to income limits as well. And certain post-secondary education expense credits are restored and made permanent.
Homeowners who defaulted on or restructured home mortgage debt will also find something to like. PATH extends the exclusion from taxation of mortgage debt forgiven through the end of 2016 and applies retroactively to Jan. 1, 2015.
The package is certainly a mixed bag: it includes subsidies for production of coal on Indian reservations at the same time other agencies seek to restrict coal usage. But any increase in certainty and reduction of temporary tax gimmicks is a step forward. The PATH Act doesn't codify all the extenders, but it does establish a few more permanent rules of the road.
Christopher A. Hopkins, CFA, is a vice president and portfolio manager for Barnett & Co. in Chattanooga.