This column first appeared in the San Antonio Express News on December 29, 2015.
Dear Mr. Premack: I just got a brief email from a charity to which I make donations. They said there is a new tax law and I should give them a boatload of money. What is the new law? Any details? – D.S.
Congress passed and on December 18 the President signed the Consolidated Appropriations Act of 2016 (HR 2029) which contains a law called the “Protecting Americans from Tax Hikes Act of 2015”. There are a few items in the lengthy Act that may impact you.
First, the Act makes permanent your ability to deduct state and local sales taxes on your 1040 tax return. This was scheduled to expire so that you would not be able to claim that deduction in the future. Now it will continue without the need to be reconsidered by Congress every few years.
Second, the Act makes permanent the deduction when a conservation easement is placed on a tract of land. Landowners have had the power for many years to ban future development of their land, even if they sell the land. These conservation easements are helping to protect natural resources and open spaces. The tax deduction associated with conservation easements is now permanent.
Third, the Act enables people who have reached age 70 ½ to make gifts directly from their IRA accounts to charity, up to $100,000 in a calendar year. This has been on a roller coaster ride for many years, with Congress passing extensions at the last minute. Now the law has no expiration date, and people with large IRA accounts can make non-taxable donations directly from those IRA accounts. This provision is probably the one about which you received the email.
The Act contains a myriad of provisions giving tax breaks to businesses and corporations. It grants, for instance: tax favored treatment for certain dividends paid by regulated investment companies, tax-free gains on certain small business stock, and special treatment for financing income earned by insurance companies and banks. Breaks include credits for maintaining railroad tracks, for training mine rescue teams, for depreciating the value of a racehorse, for building a motorsport entertainment complex, etc. These provisions can only be appreciated by tax accountants and are of no help to individual taxpayers.
Tax relief has also been provided for families and individuals. Deductions for qualified tuition are continued, mortgage insurance premiums can be deducted like mortgage interest, and there is no taxable income when a mortgage debt is discharged in bankruptcy (but only for one year). Those three obscure tax breaks are the entire package of benefits to families and individuals.
Separate from the new Tax Act, the IRS has announced new numbers for the 2016 Estate Tax and Gift Tax exemptions. The gift tax annual exclusion has not been adjusted, and remains at $14,000 for 2016.
Federal estate tax is imposed upon an individual’s death when that person’s estate exceeds a certain limit. In 2013 the limit was set at $5 million per person, expanded to $5.43 million in 2015, and has now been increased to $5.45 million for 2016. This mini-increase of $20,000 helps offset appreciation in asset values.
Paul Premack is a Certified Elder Law Attorney with offices in San Antonio and Seattle, handling Wills and Trusts, Probate, and Business Entity issues. View past legal columns or submit free questions on legal issues via www.TexasEstateandProbate.com or www.Premack.com.