United States

Congress acts to extend expired tax incentives

Some provisions may require taxpayer action by Dec. 31, 2014


Unable to agree on a larger package, Congress passed and the president signed a one-year extension of more than 50 expired tax breaks, with hopes to provide more tax certainty in 2015, perhaps as part of comprehensive tax reform

Many tax provisions that bestow various incentives on individuals and businesses were originally enacted as temporary and, therefore, must be periodically renewed by Congress. This has traditionally been accomplished by passing a two-year "extenders" package late in a lame duck session of an election year to extend the expired provisions retroactively to the beginning of the enactment year and through the end of the following year.

Negotiations on a more long-term package with some permanent provisions broke down. As a result, Congress was only able to agree on a stop-gap provision, extending over 50 expiring tax breaks through Dec. 31, 2014. While many members of Congress who voted for the package conceded that a one-year extension this late in the year is bad tax policy, they believe it should position them to negotiate a better solution as part of comprehensive tax reform in the 114th Congress in 2015.

Following are some of the more popular incentives included in the one-year extension:

Research tax credit
The research credit has now been extended 16 times in its history. While there was strong support for making the credit permanent, the cost of doing so prevented it from making it into the final extenders package. There is still a possibility that a permanent research tax credit and other improvements will be enacted in 2015 as part of comprehensive tax reform.

Work opportunity tax credit
The work opportunity tax credit, which especially benefits companies in high-turnover industries such as restaurants, retail and hotels, has been extended through 2014. What remains to be seen is whether the IRS will once again issue guidance that waives the 28 days after employment requirement to submit certification from a designated local agency, which would be required in order to make the extension truly retroactive to the beginning of 2014.

Enhanced section 179 expensing
Section 179 allows taxpayers to deduct the full cost of qualified assets rather than depreciate them. The original expense limit was $25,000, phased out for asset purchases above $200,000. However, an enhanced section 179 expense limit of $500,000 with a $2,000,000 phase-out threshold had been in effect since 2010, but reverted back to the $25,000/$200,000 limits after 2013. The Act reinstates the higher $500,000/$2,000,000 limits and the expanded definition of qualified property to include off-the-shelf software.

Bonus depreciation
The Act extends 50 percent bonus depreciation for property placed in service through Dec. 31, 2014 (2015 for certain longer production period property and certain aircraft) and also extends the election to utilize alternative minimum tax (AMT) credits in lieu of bonus depreciation.

Qualified leasehold improvements, retail improvements and restaurant property
These classes of property because of their frequent replacement and upgrading have received enhanced benefits for the past several years. The enhanced 15-year straight-line depreciation (in lieu of 39-year straight-line depreciation for commercial buildings) has been extended for property placed in service before Jan. 1, 2015. In addition, these property types may be treated as section 179 property, with an expensing limit of $250,000.

Section 179D energy efficient commercial building deduction
The special deduction for energy efficiency improvements to commercial building envelope, HVAC systems and lighting systems has been extended for property placed in service through Dec. 31, 2014.

Section 45 renewable electricity production tax credit (PTC)
The PTC for wind farms and other renewable energy facilities has been extended for qualified facilities for which construction begins before Jan. 1, 2015. In addition, the election to claim the section 48 energy investment credit in lieu of the PTC has been extended concurrently.

Section 6426 excise tax credits and section 6427 outlay payments for various alternative fuels
Section 6426 provides an excise tax credit on several types of alternative fuels, including biodiesel and liquefied natural gas (propane) used in motor vehicles, motorboats and aircraft and also on alternative fuel mixtures with diesel, gasoline or kerosene used in a trade or business. Since the credit rate exceeds the excise tax rate on these fuels, section 6426 refunds are limited to the amount of excise tax paid and section 6427 provides for additional payments for the amount of credit that exceeds the excise tax rate. These credits and payments have been extended for fuel sold or used by Dec. 31, 2014. Additional IRS guidance is forthcoming on the procedures for filing retroactive refund claims.

Tax-free charitable contributions from IRAs
Through Dec. 31, 2014, taxpayers age 70.5 and older may continue to make distributions from a traditional or Roth IRA account as a charitable contribution of up to $100,000 free of tax. In order to take advantage of this provision, the IRA trustee or custodian must be instructed to distribute the funds directly to the qualified charity. These amounts will also count as part of the required minimum distribution.

In addition, the Act includes technical corrections and clerical amendments to more than two dozen prior pieces of economic and tax legislation. The details of these changes can be found in the full text of the bill.

Taxpayers should work with their tax advisors to understand the opportunities presented by and the implications of the Act, as certain incentives may require action prior to the end of the 2014 calendar year.

The complete list of extended tax incentives included in the Tax Increase Prevention Act of 2014 appears below.

Individual tax extenders─extended through 2014

  • Deduction of expenses of elementary and secondary school teachers
  • Exclusion of imputed income from the discharge of indebtedness for a principal residence
  • Equalization of the tax exclusion for employer-provided commuter transit and parking benefits
  • Deduction of mortgage insurance premiums
  • Deduction of state and local general sales taxes in lieu of state and local income taxes
  • Deduction of contributions of capital gain real property for conservation purposes
  • Deduction of qualified tuition and related expenses
  • Exemption of distributions from individual retirement accounts for charitable purposes

Business tax extenders─extended through 2014

  • Credit for increasing research activities
  • Low-income housing tax credit rate for newly constructed non-federally subsidized buildings
  • Indian employment tax credit
  • New markets tax credit
  • Credit for qualified railroad track maintenance expenditures
  • Credit for mine rescue team training expenses
  • Credit for differential wage payments to employees who are active duty members of the Uniformed Services
  • Work opportunity tax credit
  • Authority for issuance of qualified zone academy bonds
  • Classification of race horses as three-year property for depreciation purposes
  • Accelerated depreciation of qualified leasehold improvement, restaurant and retail improvement property, motorsports entertainment complexes, and business property on Indian reservations
  • Accelerated depreciation of certain business property (bonus depreciation)
  • Deduction for charitable contributions of food inventory by taxpayers other than C corporations
  • Increased expensing allowance for business assets, computer software, and qualified real property (i.e., leasehold improvement, restaurant and retail improvement property)
  • Election to expense advanced mine safety equipment expenditures
  • Expensing allowance for film and television production costs and costs of live theatrical productions
  • Deduction for income attributable to domestic production activities in Puerto Rico
  • Rules relating to payments between related foreign corporations and dividends of regulated investment companies
  • Treatment of regulated investment companies as qualified investment entities for purposes of the Foreign Investment in Real Property Tax Act (FIRPTA)
  • Subpart F income exemption for income derived in the active conduct of a banking, financing or insurance business
  • Exemption for dividends, interest, rents and royalties received or accrued from certain controlled foreign corporations by a related entity from treatment as foreign holding company income
  • 100 percent exclusion from gross income of gain from the sale of small business stock
  • Basis adjustment rule for stock of an S corporation making charitable contributions of property
  • Reduction of the recognition period for the built-in gains of S corporations
  • Incentives for investment in empowerment zones
  • Increased level of distilled spirit excise tax payments into the treasuries of Puerto Rico and the Virgin Islands
  • Credit for American Samoa economic development expenditures

Energy tax extenders─extended through 2014

  • Credit for nonbusiness energy property
  • Credit for second generation biofuel production
  • Income and excise tax credits for biodiesel and renewable diesel fuel mixtures
  • Credit for producing electricity using Indian coal facilities placed in service before 2009
  • Credit for producing electricity using wind, biomass, geothermal, landfill gas, trash, hydropower, marine and hydrokinetic renewable energy facilities
  • Credit for energy efficient new homes
  • Special depreciation allowance for second generation biofuel plant property
  • Deduction for energy efficient commercial buildings (section 179D)
  • Tax-deferral rules for sales or dispositions of qualified electric utilities
  • Excise tax credit for alternative fuels and fuels involving liquefied hydrogen

Extenders relating to multiemployer defined benefit pension plans─extended through 2015

  • Automatic extensions of amortization periods for multiemployer defined benefit pension plans and for multiemployer funding rules under the Pension Protection Act of 2006


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