Provisions being extended, which include:
- 50% Bonus depreciation on new equipment acquisitions
- §179 expensing limitations:
- $250K qualified real property §179 limit
- R&D credit
- Tuition and fees "Above-the-line" deduction
- Itemized deduction for state and local general sales taxes
- Itemized deduction for mortgage insurance premiums (PMI) (MIP) treated as qualified residence interest
- Qualified principal residence discharge of indebtedness exclusion from gross income
- Charitable distributions from IRAs (up to $100,000 per taxpayer per year) of individuals at least 70 1/2 years of age
- Educator's $250 tax deduction of qualified out-of-pocket expense
- 15 year recovery period for qualified leasehold improvements, restaurant property and retail improvements
On December 03, 2014, the House of Representatives made the latest move in this year's tax extenders drama, passing a bill that would extend numerous expired tax provisions through the end of 2014. HR 5771 (12/03/2014).
Titled the "Tax Increase Prevention Act of 2014", the House bill would extend retroactively for one year, through the end of 2014, virtually all of the tax breaks that had previously been temporarily extended by the American Taxpayer Relief Act of 2012 (ATRA). In addition to the extensions, HR 5771 corrects numerous technical and clerical errors in the tax code, as well as eliminating many superfluous provisions (known as "deadwood").
To become law, HR 5771 still needs to pass the Senate and be signed by the President.
The following is a summary of the House bill's key provisions and a brief recap of the Senate and White House reactions. For a complete synopsis of the bill, see the Ways and Means Committee Tax Staff Summary of HR 5771.
Individual Tax Extenders
HR 5771 would extend eight tax relief provisions for individuals through the end of 2104. Notable provisions include:
- Extend the exclusion from gross income from the discharge of qualified principal residence indebtedness.
- Continue 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 (half those amounts for married taxpayers filing separately).
- 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.
- 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.
- Special rules for contributions of capital gain real property made for conservation purposes.
HR 5771 would extend forty-one tax relief provisions for businesses, including the research and development tax credit, bonus depreciation, and increased expensing limitations and the treatment of certain real property as Code Sec. 179 property. A rundown of the more important provision follows:
- Extend the research and development tax credit, which generally allows taxpayers a 20% credit for qualified research expenses or a 14 percent alternative simplified credit.
- Extend 50% bonus depreciation to property acquired and placed in service during 2014 (2015 for certain property with a longer production period). 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.
- Extend increased §179 expensing limitation and phase-out amounts ($500,000 and $2,000,000 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.
- New markets tax credit.
- Work opportunity tax credit.
- 15-year straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements.
- 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 percent of gain on certain small business stock.
- Reduction in S-corporation recognition period for built-in gains
HR 5771 also would extend multiple tax incentives for alternative and renewable energy sources, including:
- credits for nonbusiness energy property,
- an extension of the second generation biofuel producer credit,
- credits for facilities producing energy from certain renewable resources including wind power,
- credits for energy-efficient new homes, and
- deductions for energy efficient commercial buildings.
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.
Technical Corrections and Deadwood Provisions
In addition to the tax extenders provisions, HR 5771 contains numerous corrections to various technical and clerical errors. These technical and clerical errors create confusion for taxpayers and complicate administration of the tax laws. Title II of HR 5771 the Tax Technical Corrections Act of 2014 would make technical and clerical corrections to recently enacted tax legislation, including the American Taxpayer Relief Act of 2012, the Creating Small Business Jobs Act of 2010, and the Economic Stimulus Act of 2008. Notably absent from the list of technical corrections is the Affordable Care Act (i.e. Obamacare). In general, the amendments made by these technical and clerical corrections would take effect as if included in the original legislation to which each amendment relates.
Under current law, there are numerous provisions that relate to past tax years (and generally are no longer applied in computing taxes for open tax years), involve situations that were narrowly defined and unlikely to recur, or otherwise have outlived their usefulness. These types of provisions are often referred to as "deadwood" provisions and HR 5771 would repeal these current-law deadwood provisions. This repeal generally would be effective on the date of enactment, although the tax treatment of any transaction occurring before that date, of any property acquired before that date, or of any item taken into account before that date, would not be affected.
Senate and White House Reactions
For a fairly tame piece of legislation that passed the House with overwhelming bipartisan support, HR 5771 received surprisingly bitter criticism on initial response from the Senate, which had stalled on its own tax extenders bill earlier this year.
The Expiring Provisions Improvement Reform and Efficiency (EXPIRE) Act of 2014, which would have extended tax breaks for two years, was passed by the Senate Finance Committee but was blocked when it reached the Senate floor in May. Aside from the two-year time frame, the Senate bill is nearly identical in substance to the House bill.
Despite members' dissatisfaction with the House version, it appears likely that the Senate will vote to pass the year-long extension. A top Senate Democrat suggested that they may have little alternative but to accept the House's plan, as time is running out and a mindset that one year is better than none is setting in. According to Treasury Secretary Jack Lew, the Obama administration is open to the short term deal.
If the Senate does follow the House and passes the one-year bill and the President signs it into law, Congress will have set itself up to revisit the extenders again in 2015.
Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.
Source: Parker Tax Pro Library (Staff Editor Parker Tax Publishing)