Tax Prep & Planning

6 Individual Tax Provisions of the PATH Act and Other Recent Legislation

Editor’s Note: This is the third post on a series about the Protecting Americans from Tax Hikes Act, or PATH Act. The Act made dozens of changes to the tax code, including impacts to small business owners, which was covered in a previous post. Read on to learn other ways the PATH Act could impact your tax situation this upcoming tax season.

Most Americans are affected by the PATH Act in some way. Passed in late 2015, the PATH Act contains more than 100 tax provisions, many of which went into effect in 2016. The 233-page bill includes over $620 billion in tax reductions for families and businesses in America.

The PATH Act offers both temporary and permanent extensions of many tax benefits to individuals, families, and small business owners. Here are six ways the PATH Act could likely affect you this 2016 tax season:

1 – American Opportunity Tax Credit (AOTC):

 American Opportunity Tax Credit (AOTC), a tax credit for qualified education expenses paid for an eligible student for the first four years of higher education, is now permanent. You can get a maximum annual credit of $2,500 per eligible student. Phase out thresholds for single filers is $80,000 and joint filers is $160,000.

2 – Charitable IRA Rollovers:

The PATH Act permanently extends the provision allowing people 70.5 and older to make tax-free, trustee-to-trustee distributions from their individual retirement account to qualified charities. The annual limit is $100,000 per person.

3 – Mortgage Insurance Premiums:

The PATH Act extends through 2016 the provision allowing taxpayers to deduct mortgage insurance premiums, subject to a phaseout beginning at $100,000 of your adjusted gross income, or AGI.

4 – State and Local Sales Taxes: 

The PATH Act permanently extends itemized deductions for state and local general sales tax in lieu of itemized deductions for state and local income tax.

5 –Education Tax Benefits:

The PATH Act extended the above-the-line deduction for qualified tuition and fees through 2016. This deduction is subject to phaseouts based on modified adjusted gross income (MAGI). Additionally, qualified tuition plans, or 529s, have been expanded to more “qualified higher education expenses” like computers and other technology expenses. 529 beneficiaries also now have 60 days to re-contribute tuition payment refunds to a 529.

[EXTRA] 6 – Residential Energy Credit: 

While not included in the PATH ACT, the Residential Energy Efficient Property (REEP) credit was also extended. The REEP can be claimed for 30% of the cost for qualified solar electric, solar water heating, fuel cell property (up to a maximum credit of $500 for each 0.5 kilowatt (kw) of capacity), small wind energy, and geothermal heat pump properties. With the enactment of the Consolidated Appropriations Act, it has been extended for all qualifying properties through 2016 and for qualified solar electric property through 2021. However, the percentage will decrease from 30% to 26% for property placed in service in 2020 and to 22% for property placed in service in 2021.

PATH Act provisions will likely affect your tax return this year, which makes it even more important to consult with an expert. First, review your previous years’ tax returns to identify any of these benefits you’ve used in the past, then work with a tax advisor to forecast the benefits you may be eligible to maximize tax benefits in your upcoming return. At Block Advisors, we specialize in complex taxes and are now taking appointments. Find a Block Advisors office location near you now!

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