Calvetti Ferguson

Tax Increase Prevention Act of 2014

Congress has approved the Tax Increase Prevention Act (“TIPA”) of 2014 (HR 5771), which provides a one year retroactive extension of popular incentives and credits. These “extenders” affect both businesses as well as individuals. The Act includes over 50 extenders, the most popular of which are highlighted below.

BUSINESS EXTENDERS

Bonus Depreciation – extends 50% bonus depreciation on qualifying new assets placed in service during the year.

Code Section 179 Expensing – extends the increased limits for deductions and spending under Section 179. For the tax year 2014 taxpayers are allowed to deduct up to $500,000 of qualified assets placed in service vs. depreciating them over time. TIPA also sets the overall investment limit at $2 million.

Additional 179 Property – allows taxpayers to treat capital expenditures related to qualified leasehold improvements, qualified restaurant property and off-the-shelf computer software as 179 property eligible for the accelerated deduction.

Qualified Small Business Stock – allows individual taxpayers to exclude 100% of the gain on sale of qualified small business stock held for at least five years.

S-Corporation Built In Gains Tax – reduces the recognition period from ten years to five years on the sale of assets in an S-corporation following conversion from a C- corporation

Work Opportunity Tax Credit – allows a credit of 40% on a maximum of $6,000 in qualified wages for employers who hire military veterans or other qualified personnel.

Research Tax Credit – allows taxpayers to claim a credit on qualified wages and expenses for increasing research activities

INDIVIDUAL EXTENDERS

State and Local Sales Tax Deduction – taxpayers who itemize their deductions on Schedule A continue to have the option of electing to claim state and local sales tax in lieu of income tax. This is extremely beneficial to taxpayers who live in a state without a state income tax, such as Texas.

Higher Education Deduction – allows an “above the line” deduction for quali¬fied tuition and fees for post-secondary edu¬cation. The maximum deduction is $4,000 for taxpayers with AGI not exceed¬ing $65,000 ($130,000 for a joint return), $2,000 for taxpayers with AGI $65,000- -$80,000 ($130,000–$160,000 for joint filers) and $0 for other taxpayers.

Teacher’s Classroom Expenses – allows an “above the line” deduction for qualified expenses paid out of pocket during the year up to $250.

Mortgage Debt Exclusion – allows taxpayers to exclude up to $2 million of cancellation of debt income connected with the foreclosure, short sale or loan modification of the mortgage on a principal residence.

Mortgage Insurance Premium Deduction – allows mortgage insurance premiums on a qualified residence to be treated as deductible interest.

Charitable Distributions from IRAs – allows for the tax free distribution of funds from an IRA to a qualified charitable organization (must be 70 ½ or older to qualify).

Code Section 25C Credit – allows a credit for qualified energy efficiency improvements to residential property such as adding insulation or installing energy efficient windows or A/C systems

As noted above, these are just a handful of the most popular credits and incentives which were extended as a result of the Tax Increase Prevention Act of 2014. For more information on the items discussed above or to learn more about other extenders and credits which are now available for the 2014 tax year, contact your tax professional at Calvetti Ferguson.