Temporary Highway Bill Funded with Permanent Tax Changes

August 2015 | Article

On July 31, President Obama signed into law the "highway bill," officially The Surface Transportation and Veterans Health Care Choice Improvement Act of 2015. The highway bill provides approximately $8 billion of additional funding for highways and mass transit through October 29, 2015. Certain permanent tax provisions are included in the highway bill that are designed to raise revenue to partially offset the funding requirements of the legislation, including several changes that will be of interest to bankers.

Mortgage Interest Reporting
The highway bill requires lenders to expand Form 1098 information reporting to include:

  • The amount of the outstanding mortgage principal as of the beginning of the calendar year
  • The mortgage origination date
  • The address of the property that secures the mortgage

This new information is required for Forms 1098 to be made and furnished after 2016. Congress believes this additional information will allow the IRS to more easily identify taxpayers who deduct more mortgage interest than currently allowed (interest on mortgages up to $1 million and home equity debt up to $100,000) and raise $1.8 billion for the government over the 10-year "scoring" period from 2015 to 2025. 

Basis Reporting by Estates

Property included in a decedent's estate for estate tax purposes generally must be valued at fair market value on the date of death, or the alternate valuation date. Similarly, although the possibility to use a different value existed when having the proper facts, the tax basis of property acquired by the heirs is the estate value reported for estate tax purposes. However, Congress was concerned that there was a lack of consistency in the reporting of estate values by estates and tax basis of inherited property by heirs.

To allow the IRS to track basis consistency more easily, and raise approximately $1.5 billion over the scoring period, the highway bill requires estates with estate tax liability to report to both the IRS and heirs the value of inherited property. This new reporting is required for those estate tax returns showing an estate tax liability filed after July 31, 2015. The report is due not later than the earlier of (i) 30 days after the due date for filing the estate tax return, with extension, or (ii) 30 days after the actual filing of the estate tax return. However, a recent announcement by the IRS has delayed the filing of these reports until February 29, 2016, on which date any report that would have been required filed after July 31, 2015, will be due.

Revised Filing Dates for Some Returns
Corporations, including S corporations, currently file their federal income tax returns by the 15th day of the third month after year-end. Accordingly, calendar year banks must file their returns by March 15th of the following year. Calendar year partnerships, on the other hand, currently have until April 15 of the following year to file their federal income tax returns.

The highway bill, effective for 2016 returns, requires partnerships to have the same filing date as S corporations and file their returns by the 15th day of the third month following year-end. It also sets the due date for C corporation returns as the 15th day of the fourth month following year-end. Thus, calendar year C corporation banks will, for 2016 and subsequent year returns, have a due date of April 15. A special rule for C corporations with a fiscal year ending June 30 delays the change to the new reporting dates until tax years beginning after 2025 (yes - 2025 - this is not a typo). Changes have also been made to the automatic extension deadlines. Congress expects the filing date changes to generate an additional $314 million over the scoring period.

Take Time to Review
Banks will want to watch for the revised Forms 1098 and be prepared to retrieve the new information required by the highway bill and trust officers should become acquainted with the new basis consistency rules for estates and the requirements related to notifying the IRS and beneficiaries of estate reported asset values. And, while it is some time away, bankers and their tax accountants should review the new tax return due dates for tax year 2016 and consider whether any changes in tax processes will be needed. Should you have any questions concerning the highway bill, please contact your local Eide Bailly tax professional.

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