Last night the U.S. Senate passed the “Tax Increase Prevention Act of 2014” and related bills to extend certain critical tax provisions. As President Obama is expected to sign it into law, this legislation could have a significant impact on your business or personal portfolio.
First, some background. In recent years Congress has repeatedly renewed a package of expired or expiring individual, business and energy provisions known as “extenders.” The extenders are a varied assortment of more than 50 individual and business tax deductions, tax credits and other tax-saving laws.
Most of these extenders have been on the books for years but technically are temporary, because they have a specific end date. Congress has continually extended the tax breaks for short periods of time (e.g., one or two years), which is why they are referred to as “extenders.” The new legislation generally extends the tax breaks retroactively, most of which expired at the end of 2013, for one year through 2014.
Here’s an overview of some of the key tax breaks extended by this new action:
Individual extenders
The following provisions affecting individual taxpayers are extended through 2014:
- The $250 above-the-line deduction for teachers and other school professionals for expenses paid or incurred for books, certain supplies, equipment and supplementary material used by the educator in the classroom;
- The deduction for mortgage insurance premiums deductible as qualified residence interest;
- The option to take an itemized deduction for state and local general sales taxes instead of the itemized deduction permitted for state and local income taxes;
- The above-the-line deduction for qualified tuition and related expenses; and
- The provision that permits tax-free distributions to charity from an individual retirement account (IRA) of up to $100,000 per taxpayer per tax year, by taxpayers age 70½ and older.
Business extenders
The following business credits and special rules are generally extended through 2014:
- The research credit;
- The employer wage credit for activated military reservists;
- The work opportunity tax credit;
- 15-year straight line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements;
- 50% bonus depreciation;
- The increase in expensing (up to $500,000 write-off of capital expenditures subject to a gradual reduction once capital expenditures exceed $2,000,000) and an expanded definition of property eligible for expensing;
- The exclusion of 100% of gain on certain small business stock;
- The basis adjustment to stock of S corporations making charitable contributions of property;
- The reduction in S corporation recognition period for built-in gains tax;
Energy-related extenders
The following energy provisions are retroactively extended through 2014:
- The credit for nonbusiness energy property;
- The energy efficient commercial buildings deduction;
- The incentives for alternative fuel and alternative fuel mixtures; and
- The alternative fuel vehicle refueling property credit.
If you need advice on the implications of recent tax legislation for your business or personal portfolio, please call Nick Hopkins in our Tax Services department at (317) 608-6695 or email [email protected].