Federal Tax Breaks Restored

Federal Tax Breaks Restored

Individual and business taxpayers can benefit from a variety of federal tax breaks that were extended or made permanent by the Protecting America from Tax Hikes (PATH) Act, and the Consolidated Appropriations Act of 2016. Here are selected highlights.

State and local sales tax deduction

The law gives individuals who itemize their deductions the option of deducting state and local sales taxes instead of state and local income taxes. Taxpayers who elect to do so may deduct the actual amount of sales taxes paid during the year or a preset amount from an IRS table. This provision has been made permanent.

Nontaxable IRA transfers to charities

Taxpayers age 70 ½ or older who directly transfer up to $100,000 annually from their individual retirement accounts (IRAs) to qualifying charities can exclude these contributions from gross income. If all qualifications are met, these contributions will still count toward the taxpayer’s required minimum distribution for the year. This provision has been made permanent.

Increase in expensing limits

The law permanently extends the increased Section 179 expensing limit, allowing eligible businesses to expense, rather than depreciate, up to $500,000 per year of the cost of equipment and other eligible property placed in service during the tax year. The election is subject to a dollar-for-dollar phase out as the cost of expensing-eligible property rises from $2 million to $2.5 million. The IRS will adjust the 179 limits for inflation.

First-year bonus depreciation

Eligible businesses may claim bonus depreciation for qualifying property acquired and placed in service during 2015 through 2019. The available bonus depreciation percentage depends on the year the property is placed in service: 50% for 2015 through 2017, 40% for 2018, and 30% for 2019. For certain longer-lived and transportation properties, these percentages apply one year later than indicated, and bonus depreciation will be available through 2020.

Increase in “luxury auto” limits

The new law increases the dollar limits on depreciation deductions (and Section 179 expensing) by $8,000 for vehicles placed in service after 2015 and before 2018. The limits are increased by $6,400 for vehicles placed in service in 2018 and by $4,800 in 2019.

Standard Mileage Rates for 2016

Standard Mileage Rates for 2016

If you use a car for business purposes and figure your tax deduction using the IRS’s standard mileage rate—you won’t be able to deduct as much for the miles you drive in 2016 as you could in 2015.


As of January 1, 2016, the IRS set the standard mileage rate for business use of an owned or leased auto at 54¢ per mile (3.5¢ lower than the 2015 rate). Other IRS optional standard mileage rates for the use of a car (or van, pickup, or panel truck) are:

  • 19¢ per mile for medical purposes
  • 19¢ per mile for moving purposes

Additionally, a rate of 14¢ per mile, which is set by statute, applies to the use of a vehicle for charitable purposes.


The standard mileage rates are used to calculate the deductible costs of operating an auto for business, charitable, medical, or moving purposes. Tax Payers may claim deductions based on the actual costs of using a vehicle. Important to keep in mind though is the use of the standard mileage rate is simpler because it does not require the taxpayer to keep track of specific costs for maintenance, repairs, tires, oil, insurance, etc.

Many employers have an “accountable plan” in place to reimburse employees for their business expenses on a tax-free basis. The standard mileage rate may be used to reimburse employees who use their personal autos for business.