2014 Tax Extenders Law

Current, C.1, Senate Passes One-Year Tax Extenders Package, President to Sign, (Dec. 17, 2014)
In a flurry of year end activity, the Senate on December 16 approved, by a vote of 76 to 16, the Tax Increase Prevention Act of 2014(HR 5771), which retroactively extends for one-year some 54 expired tax provisions and makes technical corrections to existing tax laws. The Act, which is estimated to cost $44.7 billion over 10 years, extends the currently-expired incentives through 2014.
Outgoing Senate Finance Committee Chairman Ron Wyden, D-Ore., assailed the last-minute passage of a one-year bill, saying that the current tax code is “utterly broken.” He also pointed out that, because the bill is retroactive to 2014, it is, in reality, a two-week extension of the tax provisions. “Here’s my bottom line: Retroactive tax bills like the one before the Senate tonight may satisfy Congress, but they leave workers, families and businesses wanting. It’s time for Congress to do the hard work of tax reform,” said Wyden.
The package includes provisions that would extend for one year retroactively to January 1, 2014 and some of the more important ones for individuals are:
1. The optional sales tax deduction (in lieu of state and local income taxes). You have to itemize in order to get this deduction. The IRS provides a table with the estimated amount of the sales tax deduction, which does not include so called “big ticket” sales tax, say for a boat or car. Taxpayers can add the sales tax on these big ticket purchases to the table amount.
2. The above-the-line higher education deduction. The maximum deduction is $4,000 for single taxpayers with adjusted gross income (AGI) not exceeding $65,000 ($130,000 for joint filers). The deduction fully phases out with AGI greater than $80,000 (single), $160,000 (joint)
3. The exclusion of income from mortgage debt cancellation on a principal residence for up to $2 million. The existing insolvency exclusion, as well as an exclusion when mortgage debt is considered nonrecourse, continues to remain available.
4. The above-the-line classroom expense deduction, to a maximum of $250. Amounts paid in excess of this amount could potentially be deducted as a miscellaneous itemized deduction, subject to the 2% of AGI limitation for these types of deductions.
5. Qualified Charitable Distributions from IRAs. This applies to individuals age 70 ½ and older. They can make tax free distributions from IRAs to a qualified charity. The maximum amount is capped at $100,000 and the distributions must be made directly from the IRA to the charity. The $100,000 can include the RMD for the tax year.
For businesses some of the more important ones are:
1. The new law will provide one-year retroactive extensions for the research tax credit
2. 50-percent bonus depreciation for qualifying assets placed in service during 2014.
3. Enhanced Code Section 179 expensing (including cost recovery for qualified leasehold improvements, retail improvements and restaurant property). Prior to the law enactment, the maximum section 179 deduction was set at $25,000. The extenders law sets the dollar limit at $500,000 for 2014 if the purchase of qualifying assets is under $2 million dollars. The law preserves the right to treat off the shelf computer software as a section 179 qualifying asset. Qualified leasehold improvements, qualified retail improvements and qualified restaurant property can be treated as qualifying section 179 assets but there is a lower limit of $250,000 for these assets.
The Act also allows multiemployer pension plans to take an additional five years to amortize funding shortfalls and extends special rules for three categories of severely underfunded multiemployer pension plans. Along with the extenders, the measure includes the House-approved ABLE Bill, which creates tax-exempt accounts for use by individuals to pay qualified disability expenses. These include the costs of education and personal support.
Among its revenue raisers, the ABLE Bill indexes for inflation certain civil tax penalties. It also allows certain professional employer organizations to become solely responsible for the customer’s employment taxes, excludes dividends received from a foreign subsidiary from the additional 20-percent tax on personal holding company income and makes changes to Medicare. In contrast, the extenders portion of HR 5771 contains no revenue offsets.
Unfortunately, as noted above, the extenders provisions are set to expire again on December 31, 2014. Please see the Contact Us section of the website for our contact information. Email us or call 904-396-5831 to learn more about the services provided by Smoak, Davis & Nixon LLP.