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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.
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.
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.
Individual Provisions
The Extenders Act retroactively reinstates and extends through 2014 several tax benefits affecting
individuals, including, but not limited to the:
• Deduction for state and local sales taxes;
• Above-the-line deduction for tuition and fees;
• $250 above-the-line deduction for teacher classroom expenses;
• Exclusion of cancellation of indebtedness income from the discharge of qualified personal
residence indebtedness;
• Deduction for qualified mortgage insurance premiums;
• Exclusion for employer provided mass transit and parking benefits;
• Charitable deduction for contributions of real property for conservation purposes; and
• Tax-free distributions from IRAs for charitable purposes.
The ABLE Account
One new provision was included in the Extenders Act – the creation of the ABLE account. An
ABLE account is a new tax-favored investment account intended to encourage and assist
individuals and families in saving private funds for the purpose of supporting individuals with
disabilities. Similar in mechanics to a 529 tuition savings plan, contributions to an ABLE account
are nondeductible, but the earnings are tax-deferred and any earnings included in distributions are
tax-free if used for qualified disability expenses. Qualified disability expenses are any expenses
related to the eligible individual's blindness or disability which are made for the benefit of the
designated beneficiary, including, but not limited to, education, housing, transportation, health,
financial management, monitoring and employment training. Contribution limits are tied to the
amount of the annual exclusion for gift tax purposes - $14,000 for 2015.
For more information on how you or your business may be impacted by the Extenders Act,
contact your local CBIZ MHM tax professional or visit www.cbiz.com
Copyright © 2014, CBIZ, Inc. All rights reserved. Contents of this publication may not be reproduced without the express written consent of CBIZ.
To ensure compliance with requirements imposed by the IRS, we inform you that-unless specifically indicated otherwise-any tax advice in this
communication is not written with the intent that it be used, and in fact it cannot be used, to avoid penalties under the Internal Revenue Code, or to
promote, market, or recommend to another person any tax related matter. This publication is distributed with the understanding that CBIZ is not
rendering legal, accounting or other professional advice. The reader is advised to contact a tax Professional prior to taking any action based upon
this information. CBIZ assumes no liability whatsoever in connection with the use of this information and assumes no obligation to inform the
reader of any changes in tax laws or other factors that could affect the information contained herein.
CBIZ MHM is the brand name for CBIZ MHM, LLC, a national professional services company providing tax, financial advisory and consulting
services to individuals, tax-exempt organizations and a wide range of publicly-traded and privately-held companies. CBIZ MHM, LLC is a fully
owned subsidiary of CBIZ, Inc. (NYSE: CBZ).

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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.
  • 4. Individual Provisions The Extenders Act retroactively reinstates and extends through 2014 several tax benefits affecting individuals, including, but not limited to the: • Deduction for state and local sales taxes; • Above-the-line deduction for tuition and fees; • $250 above-the-line deduction for teacher classroom expenses; • Exclusion of cancellation of indebtedness income from the discharge of qualified personal residence indebtedness; • Deduction for qualified mortgage insurance premiums; • Exclusion for employer provided mass transit and parking benefits; • Charitable deduction for contributions of real property for conservation purposes; and • Tax-free distributions from IRAs for charitable purposes. The ABLE Account One new provision was included in the Extenders Act – the creation of the ABLE account. An ABLE account is a new tax-favored investment account intended to encourage and assist individuals and families in saving private funds for the purpose of supporting individuals with disabilities. Similar in mechanics to a 529 tuition savings plan, contributions to an ABLE account are nondeductible, but the earnings are tax-deferred and any earnings included in distributions are tax-free if used for qualified disability expenses. Qualified disability expenses are any expenses related to the eligible individual's blindness or disability which are made for the benefit of the designated beneficiary, including, but not limited to, education, housing, transportation, health, financial management, monitoring and employment training. Contribution limits are tied to the amount of the annual exclusion for gift tax purposes - $14,000 for 2015. For more information on how you or your business may be impacted by the Extenders Act, contact your local CBIZ MHM tax professional or visit www.cbiz.com Copyright © 2014, CBIZ, Inc. All rights reserved. Contents of this publication may not be reproduced without the express written consent of CBIZ. To ensure compliance with requirements imposed by the IRS, we inform you that-unless specifically indicated otherwise-any tax advice in this communication is not written with the intent that it be used, and in fact it cannot be used, to avoid penalties under the Internal Revenue Code, or to promote, market, or recommend to another person any tax related matter. This publication is distributed with the understanding that CBIZ is not rendering legal, accounting or other professional advice. The reader is advised to contact a tax Professional prior to taking any action based upon this information. CBIZ assumes no liability whatsoever in connection with the use of this information and assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein. CBIZ MHM is the brand name for CBIZ MHM, LLC, a national professional services company providing tax, financial advisory and consulting services to individuals, tax-exempt organizations and a wide range of publicly-traded and privately-held companies. CBIZ MHM, LLC is a fully owned subsidiary of CBIZ, Inc. (NYSE: CBZ).