Be Prepared for Expiring Tax Provisions
Many of These Changes Will Impact Individuals and Businesses
By MARK J. COREY, CPA
Several well-known tax breaks have expired in 2014, and absent Congressional action to renew them, they will not be available for taxpayers in 2014.
There has been discussion by the Senate and the House to renew some or all of the expired provisions, but no laws have been passed. While indications are that at least some of these provisions may eventually be extended, if the expiration of these commonly used tax provisions has a significant impact on you or your business, you may want to prepare by adjusting withholdings and estimated tax payments just in case.
Expired Provisions Affecting Individuals
Mortgage-insurance Premium Deductions
Homeowners were allowed to deduct qualified mortgage-insurance premiums by treating them as home-mortgage interest.
Mortgage Debt Relief
Generally, cancelled or forgiven debt is considered taxable income. However, up to $2 million of cancelled principal-residence mortgage debt could be excluded from taxable income if the debt was discharged on or after Jan. 1, 2007, and before Jan. 1, 2014, as a result of foreclosure, short sale, or mortgage restructuring.
State and Local General Sales-tax Deduction
Taxpayers had the option to deduct sales tax instead of state income tax in years before 2014. This provision was especially beneficial for individuals who lived in states with no income tax.
Educator Out-of-pocket Expenses Deduction
For many years, elementary and secondary school teachers enjoyed an above-the-line deduction of up to $250 for out-of-pocket expenses for school and classroom-related expenses.
Tuition and Fees Deduction
Taxpayers were able to deduct above-the-line qualified higher education expenses. Taxpayers will no longer get this deduction for 2014, but the Lifetime Learning Credit and American Opportunity Credit will still be available for college students.
Non-business Energy Credit
This credit for the installation of qualified energy-efficiency improvements, such as insulation, windows, doors, and roofs, as well as certain water heaters and qualified heating and air-conditioning systems, expired Dec. 31, 2013.
Expired Provisions Affecting Businesses
Expanded IRC Section 179 Expensing
For tax years beginning in 2010 and through 2014, taxpayers were allowed to expense up to $500,000 for eligible property additions that they would have otherwise capitalized and depreciated over their useful lives, provided the eligible additions did not exceed $2 million. The Section 179 deduction dropped to $25,000 for tax years beginning on or after January 1, 2014.
A bonus depreciation deduction was allowed for qualifying fixed assets acquired and placed in service from 2007 through 2013. The rate was generally 50%; however, for qualifying assets placed in service from Sept. 9, 2010 through Dec. 31, 2011, the rate was 100%. For 2014 and future years, there is no current bonus depreciation allowed except on long-production property and certain non-commercial aircraft, for which the expiration was extended by one year to Dec. 31, 2014.
Retail and Restaurant Improvements
Certain qualified business assets were allowed a shorter life for depreciation purposes. Qualified leasehold improvements and restaurant improvements, placed in service from Oct. 23, 2004 through Dec. 31, 2013, were depreciated over 15 years. Qualified retail-store improvements, placed in service from Jan. 1, 2009 through Dec. 31, 2013,were also depreciated using a 15-year life. For these types of additions placed in service in 2014, the depreciable life generally reverts back to 39 years but depends upon the individual type of expenditure.
R & D Tax Credit
Taxpayers were allowed a tax credit equal to 20% of the excess of qualified research expenses for the current year over the prior year, basic research payments made to qualified organizations, and specific energy-research-consortium expenditures paid or incurred through Dec. 31, 2013.
There are many well-known and popular tax breaks that expired prior to 2014. On April 28, 2014, the Senate introduced the EXPIRE (Expiring Provisions Improvement, Reform, and Efficiency) Act of 2014 to extend more than 50 expired tax breaks and benefits. That same day, the bill was approved by the Senate Finance Committee but has advanced no further due to disagreements on procedural issues. The House has taken a different approach, and the House Ways and Means Committee has passed 12 separate tax bills, including seven for business-tax extenders and five related to charitable deductions.
One of the business-extender bills, a simplified research-credit bill which would make the extension permanent, was passed by the House, and it is expected that the remaining 11 bills will be considered prior to the August recess. Given the different approaches by the House and Senate, reaching agreement may be a challenge. n
Mark J. Corey is a senior tax manager in the Springfield office of Wolf & Co., P.C. Wolf is a leading regional certified public accounting firm with offices in Springfield, Boston, and Albany, N.Y., which provides accounting, tax, and consulting services to individual and business clients.