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IRS provides inflation adjustments in light of recent PATH Act changes

Rev Proc 2016-14, 2016-9 IRB

In a Revenue Procedure, IRS has provided the 2016 figures for certain items that were made subject to annual inflation adjustments by the Protecting Americans from Tax Hikes (PATH) Act of 2015 (P.L. 114-113, 12/18/2015). IRS also modified the monthly excludible amounts for employer-provided transportation in a commuter highway vehicle and for transit passes, to reflect that the PATH Act permanently raised this amount to equal that for qualified parking benefits.

Above-the-line deduction for educator expenses. Under pre-PATH Act law, eligible elementary and secondary school teachers could, for tax years beginning before Jan. 1, 2015, claim an above-the-line deduction for up to $250 per year of expenses paid or incurred for books, certain supplies, computer and other equipment, and supplementary materials used in the classroom.

In addition to making this deduction permanent, the PATH Act also modified it in several ways, including by indexing the $250 amount for inflation. (Code Sec. 62(a)(2)(D))

2016 adjustment. For tax years beginning in 2016, the maximum amount of the educator expense deduction is $250. (Rev Proc 2016-14, Sec. 3.01)

RIA observation: Due to the way that inflation adjustments are calculated, not every amount increases every year.

Enhanced expensing under Code Sec. 179. Under Code Sec. 179, certain taxpayers may elect to deduct as an expense, rather than to depreciate, up to a specified amount of the cost of new or used tangible personal property placed in service during the tax year in the taxpayer’s trade or business. The maximum annual expensing amount generally is reduced dollar-for-dollar by the amount of Code Sec. 179 property placed in service during the tax year in excess of a specified investment ceiling.

For tax years beginning in 2014, (1) the dollar limitation on the expensing deduction was $500,000; and (2) the investment-based reduction in the dollar limitation began to take effect when property placed in service in the tax year exceeds $2 million (the investment ceiling). Under pre-PATH Act law, however, for tax years beginning after 2014, these figures were scheduled to drop to $25,000 and $200,000.

In addition to making the $500,000 and $2 million figures permanent, the PATH Act also modified Code Sec. 179 expensing in a number of ways, including by indexing these figures for inflation for tax years beginning after Dec. 31, 2015.

2016 adjustment. For tax years beginning in 2016, the dollar limitation is $500,000, and the investment ceiling is $2.1 million. (Rev Proc 2016-14, Sec. 3.03)

Parity in excluded employer-provided mass transit and parking benefits. Under pre-PATH Act law, for 2015, the inflation-adjusted amounts an employee could exclude from gross income were up to: (1) $250 per month for qualified parking, and (2) $130 a month for transit passes and transportation in a commuter highway vehicle (including van pools). However, notwithstanding the applicable statutory limits on the exclusion of qualified transportation fringes, a parity provision in effect for months before Jan. 1, 2015, required that the monthly dollar limitation for transit passes and transportation in a commuter highway vehicle had to be applied as if it were the same as the dollar limitation for that month for employer-provided parking.

The PATH Act permanently extended the parity provision. (Code Sec. 132(f)(2))

2016 adjustment. For tax years beginning in 2016, the inflation-adjusted excludible amount for transit passes and commuter transportation in a commuter highway vehicle is $255—equal to that for qualified parking benefits. (Rev Proc 2016-14, Sec. 3.02) Rev Proc 2015-53, 2015-44 IRB 615, Sec. 3.17 is modified accordingly.

References: For the above-the-line deduction for educator expenses, see FTC 2d/FIN ¶  A-2611.2  ; United States Tax Reporter ¶  624.02  ; TaxDesk ¶  560,706  ; TG ¶  1118  . For the Code Sec. 179 expensing election, see FTC 2d/FIN ¶  L-9901  ; United States Tax Reporter ¶  1794  ; TaxDesk ¶  268,400  ; TG ¶  14226  . For transportation fringe benefits, see FTC 2d/FIN ¶  H-2217  ; United States Tax Reporter ¶  1324.08  ; TaxDesk ¶  134,591  ; TG ¶  7224  .

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