New Law Renews Expired Tax Provisions

One-year extension retroactively approved

After lengthy debate, Congress finally approved a laundry list of “tax extenders” before it adjourned in 2014. But the respite is only temporary. The Tax Increase Prevention Act of 2014 (TIPA)—signed into law on  December 19, 2014—applies retroactively to the beginning of 2014 but lasts for just one year. Thus, Congress is already reviewing these measures for 2015.

TIPA applies to a wide range of provisions for individual and business taxpayers. Some of the most popular tax breaks include the following:

  • The new law preserves the maximum Section 179 allowance of $500,000 for qualified property placed in service in 2014 with a phase-out threshold of $2 million. It was scheduled to drop to $25,000, subject to a $200,000 threshold.
  • A business may be entitled to a 50% bonus depreciation deduction for qualified property placed in service in 2014 (extended through 2015 for certain property).
  • An individual can deduct state and local sales taxes in lieu of state and local income taxes. This optional deduction may be based on an IRS table or actual receipts.
  • Some parents of college students can deduct tuition and fees up to a maximum of $4,000. The deduction is determined by your modified adjusted gross income (MAGI). No deduction is allowed for joint filers with MAGI above $160,000 ($80,000 for single filers).
  • If you are age 70½ or older, up to $100,000 of IRA funds can be transferred tax-free to a charity in 2014. The transfer counts as a required minimum distribution (RMD) for IRA purposes. RMDs are required after reaching age 70½.
  • Generally, a research credit is available for 20% of the excess expenses for the year over a base amount or a simplified credit based on 14% of the amount exceeding half of the average for the prior three tax years.
  • Homeowners can exclude tax normally resulting from a mortgage debt cancellation or forgiveness of up to $2 million for a principal residence.
  • The tax exclusion for mass transit benefits in 2014 remains at $250 per month, instead of dropping to $130 per month.
  • Investors in qualified small business stock (QSBS) may exclude 100% of the gain from selling QSBS acquired before 2015 if held more than five years. The tax exclusion was previously limited to 50% of the QSBS gain.
  • Taxpayers may use a faster 15-year depreciation period for qualified leasehold improvements, restaurant buildings and retail improvements placed in service in 2014. Normally, write-offs must span a total of 39 years.
  • A business may claim a tax credit for hiring workers from certain disadvantaged groups or qualified veterans.
  • Individuals may benefit from a 10% residential energy credit up to a maximum of $500. Other special limits may apply.
  • Teachers may deduct up to $250 of out-of-pocket classroom expenses above the line on 2014 tax returns.

This is just an overview of the new tax extender law. TIPA extends numerous other provisions, while a handful—including credits for plug-in electric vehicles and health coverage for displaced workers—were left out of the mix. Please call Clarus Partners to discuss your situation.

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