Extender Provisions Good Through 2014
BUSINESS TAX BREAKS
- Boosted Expensing Amounts for 2014: Pursuant to IRC Section 179, the Act retroactively extends for one year the increased $500,000 maximum expensing amount for the cost of new or used tangible personal property placed into service during the tax year. The increased $2 million investment-based phase-out amount is extended as well. These increased amounts apply for qualified property placed in service before January 1, 2015.
- Bonus First-Year Depreciation Extended: The Act extends for one year the additional first-year bonus depreciation deduction, which is equal to 50% of the adjusted basis of qualified property acquired and placed in service before January 1, 2015 (January 1, 2016, for certain longer-lived and transportation property).
- Reduction in S Corp Recognition Period for Built-In Gains Tax Extended: Where a corporation that was formed as a C corporation elects to become an S corporation (or where an S corporation receives property from a C corporation in a nontaxable carryover basis transfer), an S corporation is taxed at the highest corporate rate (currently 35%) on all gains that were built-in at the time of the election, if the gain is recognized during a specified recognition period. The Act provides that for determining the net recognized built-in gain for tax years beginning in 2014, the recognition period is a 5-year period (same as the rule for tax years 2012 and 2013). This means than an S corporation that sells assets in 2014 that would otherwise be subject to the built-in gains tax will not be subject to the tax only if the S corporation had reached the fifth year of its recognition period before 2014 (i.e., the corporation had made its S election prior to 2010). A C corporation that makes an S election in 2014, however, will be subject to a 10-year recognition period.
- Research Credit Extended: The Act retroactively extends the research credit for one year to apply to amounts paid or accrued before January 1, 2015. The research credit equals the sum of: (1) 20% of the excess (if any) of “qualified research expenses” for a tax year over a base amount; (2) the university basic research credit (i.e., 20% of the basic research payments); (3) 20% of the taxpayer’s expenditures on qualified energy research undertaken by an energy research consortium.
- Exclusion of 100% of Gain on Certain Small Business Stock Extended: The Act retroactively extends for one year the 100% exclusion of the gain on the disposition of “qualified small business stock” that is acquired before January 1, 2015. None of the excluded gain is subject to the alternative minimum tax.
INDIVIDUAL TAX BREAKS
- Nontaxable IRA Transfers to Eligible Charities Extended: Taxpayers who are age 70 1/2 or older can make tax-free distributions to a charity from an Individual Retirement Account (IRA) of up to $100,000 per year. These distributions are not subject to the charitable contribution percentage limits since they are neither included in gross income nor claimed as a deduction on the taxpayer’s return. The Act retroactively extends this provision for one year so that it is available for charitable IRA transfers made in tax years beginning before January 1, 2015.
- Exclusion for Discharged Home Mortgage Debt Extended: Discharge of indebtedness income from qualified principal residence debt, up to a $2 million limit ($1 million for married individuals filing separately) is excluded from gross income. The Act extends this exclusion for one year so that it applies to home mortgage debt discharged before January 1, 2015.
ADDITIONAL EXTENDED PROVISIONS
In addition to those previously discussed, the following provisions have also been extended retroactively from January 1, 2014 through December 31, 2014:
- Lower shareholder basis adjustments for charitable contributions by S corporations
- New Markets Tax Credit
- Work Opportunity Tax Credit for the hiring of military veterans and other targeted groups
- Deduction for donations of food inventory
- State and Local Sales Tax Deduction
- Mortgage Insurance Premiums as Deductible Qualified Residence Interest
- Above-the-Line Deduction for Educator Expenses
- Above-the-Line Deduction for Higher Education Expenses
- Energy Related
- Credit for non-business energy property
- Credit for biodiesel and renewable diesel fuel sold in the U.S.
- Credit for production of electricity from qualified energy resources at qualified facilities
- Energy efficient commercial buildings deduction
Taxpayers should consult WS+B professionals to determine if any of these retroactively extended tax breaks can be utilized.
Author: CJ Stroh | [email protected]