Key Tax Provisions– Extensions Still Uncertain

November 13, 2014 – With the fourth quarter of 2014 here, we continue to await Congressional action on the extension of a number of key tax provisions that expired at the end of 2013. Though the continuing delay creates uncertainty for taxpayers as they begin to prepare for their 2014 tax returns, most observers hope that extender legislation will come now that the midterm elections are over.

The following are some of the provisions that expired at the end of 2013 and that might affect you or your business.

Individuals

Deduction for qualified tuition and related expenses

Eligible taxpayers were previously allowed to take an above-the-line deduction for certain tuition and related expenses. The maximum deduction was either $4,000 or $2,000, depending on income.

Itemized deduction for state and local general sales taxes

Previously allowed as an alternative to the itemized deduction for state income taxes, this deduction was particularly valuable to residents of states with no income tax and taxpayers who had purchased large items such as automobiles.

Premiums for mortgage insurance deductible as qualified residence interest

Taxpayers were allowed to deduct premiums paid or incurred for qualified mortgage insurance as qualified residence interest, provided that their adjusted gross income did not exceed certain levels.

Credit for certain non-business energy property

This provision permitted taxpayers to take up to $500 in lifetime credits for qualified energy efficiency improvements to their principal residences.

Tax-free distribution from IRAs for charitable purposes

Previously, taxpayers age 70½ and older were permitted to transfer up to $100,000 directly from their individual retirement accounts (IRAs) to qualified charities and then to exclude that distribution from their gross income. The transferred amount counted toward the taxpayer’s annual IRA required minimum distribution (RMD).

Discharge of indebtedness on principal residence.

Taxpayers were permitted to exclude from gross income a lender’s discharge of indebtedness on the debtor’s qualified principal residence, provided certain requirements were met.

Businesses

Fifteen-year straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements

Owners were previously allowed to depreciate such items over a 15-year period rather than the otherwise applicable 39-year period

Increased Section 179 expensing

For 2012 and 2013, eligible taxpayers could take as an immediate expense — rather than depreciate — the cost of up to $500,000 of qualified Section 179 property. However, that limit has dropped dramatically to $25,000 for 2014.

First-year (“bonus”) depreciation for qualified property

Some legislators are seeking a return of the generous 50% first-year “bonus” depreciation that applied to qualifying property (generally, tangible property with a recovery period of 20 years or less, certain leasehold improvement property, and computer software).

Credit for research and experimentation expenses

Another popular business provision was the research credit, which generally allowed a credit of up to 20% for qualifying research expenses over a base amount.

Work opportunity tax credit

This credit allowed employers who hired individuals from certain targeted groups to obtain tax credits based on a percentage of first-year wages paid to those employees.

Energy efficient commercial buildings deduction

Previously, owners of commercial buildings could expense the cost of qualifying energy-efficient property installed on or in a building in the United States.

As the end of the tax year nears, you may benefit from reviewing your tax situation and year end tax planning accordingly.

To discuss your tax situation further, please contact Samantha Affolter at 716.634.8800 or saffolter@dopkins.com or your Dopkins Tax Advisor.

About the Author

Samantha Affolter CPA

Samantha helps both business and individual clients with her tax compliance and tax planning expertise.

Join Our Team

Whether you are evaluating career opportunities as an accountant, business consultant or IT professional, you'll want to know what differentiates Dopkins & Company from all the competition. Learn more today.

Careers