This article has been updated to reflect that President Obama signed the bill December 19, 2014.
In the late hours of December 16, 2014 just before lawmakers were scheduled to leave for the Christmas holiday, Senators voted 76-16 to pass legislation to renew for the 2014 tax year more than 50 expired tax breaks. On December 19, 2014, President Obama signed the legislation.
The $41.6 billion bill (H.R. 5771) renews numerous tax provisions including the research and development credit, the deduction for state and local taxes and Section 179 expensing.
The retroactive provisions will be available for taxpayers in tax year 2014 and will allow them to claim the tax breaks on returns for the 2015 filing season. Lawmakers will have to go through a similar exercise next year to craft a long-term solution, as the tax breaks will not be renewed again without further legislation.
Among the highlights of the tax break extensions are:
Business Tax Extenders – Extends through 2014:
- the tax credit for increasing research activities;
- the work opportunity tax credit;
- the tax credit for differential wage payments to employees who are active duty members of the Uniformed Services;
- the classification of race horses as three-year property for depreciation purposes;
- accelerated depreciation of qualified leasehold improvement, restaurant, and retail improvement property. This allows businesses to claim additional first-year depreciation deduction equal to 50% of qualified asset costs.
- accelerated depreciation of certain business property (50% first-year bonus depreciation);
- the special rule allowing a tax deduction for charitable contributions of food inventory by taxpayers other than C corporations;
- the increased expensing allowance ($500,000) for business assets, computer software, and qualified real property (i.e., leasehold improvement, restaurant, and retail improvement property);
- the expensing allowance for film and television production costs and costs of live theatrical productions;
- the tax deduction for income attributable to domestic production activities in Puerto Rico;
- tax rules relating to payments between related foreign corporations and dividends of regulated investment companies;
- the treatment of regulated investment companies as qualified investment entities for purposes of the Foreign Investment in Real Property Tax Act (FIRPTA);
- the tax rule exempting dividends, interest, rents, and royalties received or accrued from certain controlled foreign corporations by a related entity from treatment as foreign holding company income;
- the 100% exclusion from gross income of gain from the sale of small business stock;
- the basis adjustment rule for stock of an S corporation making charitable contributions of property;
- the reduction of the recognition period for the built-in gains of S corporations;
- tax incentives for investment in empowerment zones;
Energy Tax Extenders – Extends through 2014:
- the tax credit for residential energy efficiency improvements;
- the tax credit for second generation biofuel production;
- the income and excise tax credits for biodiesel and renewable diesel fuel mixtures;
- the tax credit for producing electricity using wind, biomass, geothermal, landfill gas, trash, hydropower, and marine and hydrokinetic renewable energy facilities;
- the tax credit for energy efficient new homes;
- the tax deduction for energy efficient commercial buildings;
- the excise tax credit for alternative fuels and fuels involving liquefied hydrogen.
Extenders Relating to Multiemployer Defined Benefit Pension Plans – Extends through 2015 the automatic extensions of amortization periods for multiemployer defined benefit pension plans and for multiemployer funding rules under the Pension Protection Act of 2006.
Individual Tax Extenders – Extends through 2014:
- tax deduction of expenses of elementary and secondary school teachers;
- tax exclusion of imputed income from the discharge of indebtedness for a principal residence;
- equalization of the tax exclusion for employer-provided commuter transit and parking benefits;
- tax deduction of mortgage insurance premiums;
- tax deduction of state and local general sales taxes in lieu of state and local income taxes;
- tax deduction of contributions of capital gain real property for conservation purposes;
- tax deduction of qualified tuition and related expenses; and
- tax exemption of distributions from individual retirement accounts for charitable purposes.
Please look for future emails to provide more details on these tax break extensions. In the meantime, don’t hesitate to call us at 404-874-6244 and speak with a Smith & Howard tax professional.