On the evening of December 16, the Senate passed the Tax Increase Prevention Act of 2014
("Extenders Act"), retroactively reinstating many tax breaks that expired at the end of 2013, but
only extending those provisions through 2014.
Congress Extends Expiring Tax Provisions Through 2014
1. Congress Extends Expiring Tax
Provisions Through 2014
On the evening of December 16, the Senate passed the Tax Increase Prevention Act of 2014
("Extenders Act"), retroactively reinstating many tax breaks that expired at the end of 2013, but
only extending those provisions through 2014.
On the evening of December 16, the Senate passed the Tax Increase Prevention Act of 2014
("Extenders Act"), retroactively reinstating many tax breaks that expired at the end of 2013, but
only extending those provisions through 2014. The House of Representatives originally passed
the Extenders Act on December 3 and, with the Senate's vote, the bill now heads to President
Obama, who is expected to sign it. After a year filled with discussions about corporate tax reform
and the permanent extension of popular provisions. Such as the research tax credit, to walk
away
with only a one-year extension of the expired provisions feels anticlimactic. Taxpayers that were
hesitant to take advantage of the tax breaks until they were officially extended will have little time
to do so before year end. At least taxpayers and their tax advisors will be able to factor these
provisions into their year-end tax projections for their fourth quarter estimate calculations.
How We Got Here
While the American Taxpayer Relief Act of 2012 permanently extended many tax
provisions, such as the lower marginal and capital gain tax rates (for most taxpayers), AMT
patch, and $5 million lifetime gift and estate tax exemption, many popular tax breaks were
only extended through 2013 (the "extenders"). Congressional leaders took no action on the
extenders during 2013, hoping to incorporate those provisions into a broader discussion on
corporate tax reform in 2014. In late February, House Ways and Means Committee
Chairman Dave Camp (R-Mich.) released a discussion draft of a comprehensive tax reform
bill that permanently extended some of the extenders while completely eliminating others.
Reaction on Capitol Hill to Camp's proposal was mixed and it quickly became apparent that
no major tax reform would take place in 2014.
2. Although the extender legislation was raised periodically throughout 2014, the discussion died
down as the mid-term elections approached. Soon after the elections, Senate and House leaders
reportedly negotiated a bipartisan agreement to permanently extend some provisions and extend
others through 2015 but, before the details of the compromise even could be released, President
Obama threatened to veto the measure for permanently extending some business provisions but
not any provisions targeted towards lower and middle-income taxpayers. With time running out
before year end, and the threat of a delayed filing season looming, House leadership decided to
move forward with the one-year extension of all of the extender provisions and the Senate
begrudgingly fell in line.
Business Provisions
Some of the more prominent business provisions that the Extenders Act reinstated and extended
through December 31, 2014 (or for 2014 tax years where indicated) include:
Research Tax Credit – The research and experimentation tax credit encourages domestic
research and experimentation by providing a tax credit for amounts incurred for qualified
research expenses. Many taxpayers proceeded with research activities in 2014 assuming that
the credit would be reinstated, but the failure of Congress to permanently extend the credit
means that businesses once again face uncertainty about the credit's future as they plan their
long-term research activities.
Enhanced Section 179 Expensing Election – The Section 179 immediate expensing election
had plummeted from $500,000 in 2013 to $25,000 in 2014. With the Extenders Act,
businesses with adequate taxable income can immediately deduct up to $500,000 of qualified
tangible personal property (including off-the-shelf computer software) in 2014 tax years. The
Section 179 deduction begins to phase out when total qualified purchases for the year
exceeds $2 million. The Extenders Act also reinstated the provision that allows the immediate
deduction of up to $250,000 of qualified leasehold, restaurant and retail improvement property.
The property must be placed in service during the 2014 tax year to qualify for the enhanced
Section 179 deduction, so calendar-year taxpayers only have a few weeks to take additional
advantage of this provision.
3. 50 Percent Bonus Depreciation – Taxpayers can once again elect to immediately write off half
of qualifying asset purchases if the assets are placed in service before January 1, 2015. Qualifying
assets generally include new tangible personal property, off-the-shelf computer software and
qualified leasehold improvements. Qualified restaurant or retail property do not qualify for bonus
depreciation unless the property also meets the definition of qualified leasehold improvements.
The
Extenders Act also reinstated the corresponding election to accelerate alternative minimum tax
(AMT) credits in lieu of claiming bonus depreciation.
15-year Straight Line Cost Recovery – Traditionally depreciated over 39 years, qualified leasehold,
restaurant or retail property improvements placed in service before January 1, 2015 can be
depreciated over 15 years on a straight-line basis. Improvements must be made to the interior of
non-residential real property more than three years after the building was placed in service.
Qualifying restaurant and retail improvements can include improvements to owner-occupied or
leased space while qualifying leasehold improvements may only include leased space (related
party leases do not qualify).
Several other expired business tax provisions were retroactively
Extended through 2014, including, but not limited to the:
• Work opportunity tax credit;
• New markets tax credit;
• 100% exclusion of gain from the sale of qualified small business stock;
• 5-year recognition period for built-in gains of S corporations;
• Basis adjustment to stock of S corporations making charitable contributions of appreciated
property;
• Subpart F exception for active financing income;
• Enhanced charitable deduction for contributions of food inventory;
• Energy efficient commercial buildings deduction; and
• Several other energy incentives.