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.
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.
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.
About the Author
Samantha Affolter CPA
Samantha helps both business and individual clients with her tax compliance and tax planning expertise.