Congress Forges PATH in Tax Laws for Business, Individuals
by Michael Hackman
Congress has avoided a government shutdown by agreeing to a new budget in its Consolidated Appropriations Act, and the adopted legislation [cynically named the Protecting Americans From Tax Hikes (PATH)], includes some significant tax changes.
Some of these changes are “permanent” – which even though they’ll be subject to future legislation, at least end the government practice of allowing a provision to expire and then retroactively extend it in late December for the year about to end – but leave uncertainty for future years.
Among the provisions are:
A. Reinstating and making permanent the ability of a taxpayer who has reached age 70 ½ to make a charitable contribution of up to $100,000 from an IRA. These distributions to charity can be part of a Required Minimum Distribution (RMD). This provision has been around since 2006, but lately it has not applied to the current year until revived in late December.
B. Making permanent the five-year period in which an S corporation is subject to a built-in gains tax (essentially a double tax) when an S corporation sells assets. Initially a 10-year period, and then a seven-year period, the extra tax won’t apply if five years from conversion to an S corporation has elapsed before the start of a year of sale.
C. Eliminating the tax when up to $2 million of mortgage indebtedness obtained to acquire the principal residence is cancelled. This temporary rule starting in 2007 is now in effect through the end of 2016.
There are many other tax provisions in the legislation, some of which will be the subject of a future blog.
Michael Hackman is a Certified Specialist in Tax Law (State Bar of California Board of Legal Specialization), and Chair of our Tax Planning and Trusts & Estates Planning Practice Group.