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Overview of 2014 Tax Increase Prevention Act

December 19, 2014

Late Tuesday, December 16, the Senate approved HR 5771, legislation containing several key tax provisions. Arguably, the most significant content is The 2014 Tax Increase Prevention Act. Also included in the legislation is The 2014 ABLE Act, which provides for a new type of tax-advantaged savings program, a qualified ABLE program, to help in meeting the financial needs of disabled individuals and of families raising children with disabilities.

This article focuses on The 2014 Tax Increase Prevention Act. With this Act, Congress has once again extended a package of expired or expiring individual, business, and energy provisions known as “extenders.” The extenders are a varied assortment of more than 50 individual and business tax deductions, tax credits, and other tax-saving provisions which have been on the books for years but which technically are temporary because they have a specific end date. Congress has repeatedly temporarily extended the tax breaks for short periods of time (e.g., one or two years), which is why they are referred to as “extenders.” The new legislation generally extends the tax breaks retroactively, most of which expired at the end of 2013, for one year through 2014.

This article is necessarily brief, focusing on the more commonly used provisions and those that most readily affect our clients. Please call our office for details of how these and other changes may affect you or your business.

INDIVIDUAL EXTENDERS
The following provisions which affect individual taxpayers
are extended for 2014:

  • Provision that permits tax-free distributions to charity from an individual retirement account (IRA) of up to $100,000 per taxpayer per tax year, by taxpayers age 70 and ½ or older
  • Exclusion of up to $2 million ($1 million if married filing separately) of discharged principal residence indebtedness from gross income
  • Deduction for mortgage insurance premiums deductible as qualified residence interest
  • Option to take an itemized deduction for state and local sales taxes instead of the itemized deduction permitted for state and local income taxes
  • $250 above-the-line deduction for teachers and other school professionals for expenses paid or incurred for books, certain supplies, equipment, and supplementary material used by the educator in the classroom
  • Above-the-line deduction for qualified tuition and related expenses
  • Credit for non-business energy property

BUSINESS EXTENDERS
The following business credits and special rules are generally extended for 2014:

  • Increase in Section 179 expensing of fixed assets (up to $500,000 subject to a gradual reduction once total capital expenditures exceed $2,000,000) and an expanded definition of property eligible for expensing
  • 50% bonus depreciation
  • 15-year straight line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements
  • Research credit
  • Work opportunity tax credit
  • Enhanced charitable deduction for contributions of food inventory
  • Exclusion of 100% of gain on certain small business stock
  • Reduction in S corporation recognition period for built-in gains tax from 10 to 5 years

This article is necessarily brief, focusing on the more commonly used provisions and those that most readily affect our clients. Please call our office for details of how these and other changes may affect you or your business.