On Friday, December 19th, President Obama signed the tax extenders legislation into law that retroactively extends for one year the bulk of the temporary tax incentives that expired on December 31, 2013. The Tax Increase Prevention Act of 2014 (hereinafter “TIPA”) was approved on a bipartisan basis in the House of Representatives on December 3rd and the Senate on December 16th. Its passage and enactment mark the last significant action in connection to tax policy in the 113th Congress, which has now officially adjourned as the 114th Congress convenes on January 6, 2015. However, the tax extenders package is short-lived as the retroactive renewal of approximately 60 temporary provisions sunsets on December 31, 2014. For taxpayers who rely on these provisions for planning purposes, this means a return to uncertainty in just a few weeks as calendar year 2014 comes to a close. For lawmakers, it means the debate over the future of these tax extenders begins anew in the 114th Congress when Congress reconvenes in January.
The subsequent synopsis captures TIPA’s primary provisions including, but not limited to:
Business Entity Based Tax Extenders
• The extension of the Research and Experimentation Tax Credit program, which was originally introduced in the Economic Recovery Tax Act of 1981 sponsored by U.S. Representative Jack Kemp and U.S. Senator William Roth, to encourage significant investment within the United States through research and development jobs;
• The extension of the New Markets Tax Credit program which assists in the revitalization efforts of low-income and impoverished communities across the United States and its Territories;
• The extension of the Work Opportunity Tax Credit program that provides an advantageous tax credit to employers for hiring individuals from certain target groups who have consistently faced significant barriers to employment;
• 50% Bonus Depreciation for property acquired and placed into service during 2014. This provision would continue to allow taxpayers to elect to accelerate the use of AMT credits in lieu of Bonus Depreciation under special rules for property placed in service during 2014. The provision would also continue a special accounting rule involving long-term contracts and a special rule for regulated utilities;
• 15-year straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements;
• Increased small business expensing limitations and phase-out amounts (e.g., $500,000 and $2 million respectively; without the extension the amounts would be $25,000 and $200,000, respectively). The special rules that allow expensing for computer software, qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property also would be extended through 2014;
• Enhanced charitable deduction for contributions of food inventory;
• Look-through treatment of payments between related controlled foreign corporations under foreign personal holding company rules;
• Temporary exclusion of 100% of gain on certain small business stock; and
• Reduction in S-corporation recognition period for built-in gains.
Family Office Based Tax Extenders
• Extend the exclusion from gross income of qualified charitable distributions from IRAs of individuals at least 70 1/2 years of age. The exclusion is for up to $100,000 per taxpayer per year;
• Extend the treatment of qualified mortgage insurance premiums as interest for purposes of the mortgage interest deduction. This deduction phases out ratably for taxpayers with adjusted gross income between $100,000 and $110,000 (i.e., half those amounts for married taxpayers filing separately);
• Extend the exclusion from gross income from the discharge of qualified principal residence indebtedness;
• Above-the-line deduction for higher education expenses;
• Deduction for expenses of elementary and secondary school teachers;
• Increased exclusion from income for employer-provided mass transit and parking benefits;
• Deduction for state and local general sales taxes; and
• Special rules for contributions of capital gain real property made for conservation purposes.
Green Energy Based Tax Extenders
• Extend multiple green energy tax incentives for alternative and renewable energy sources, including (1) credits for nonbusiness energy property, (2) an extension of the second generation biofuel producer credit, (3) credits for facilities producing energy from certain renewable resources including wind power, (4) credits for energy-efficient new homes, and (5) deductions for energy efficient commercial buildings;
• Extend the credit for purchases of nonbusiness energy property (i.e., residential energy credits). The provision allows a credit of 10 percent of the amount paid or incurred by the taxpayer for qualified energy improvements, up to $500; and
• Extend the tax credit for manufacturers of energy-efficient residential homes. An eligible contractor may claim a tax credit of $1,000 or $2,000 for the construction or manufacture of a new energy efficient home that meets qualifying criteria.
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