In December, President Barack Obama signed legislation that retroactively extended more than 50 expired tax provisions for 2014, allowing taxpayers to take advantage of a host of tax incentives during this filing season. Among the highlights of the act are that the research and development (R&D) credit, first-year bonus depreciation, and the increased Sec. 179 expensing limits are all extended.
The Tax Increase Prevention Act of 2014, P.L. 113-295, temporarily extends a variety of expired individual, business, and energy tax breaks, as well as certain provisions relating to multiemployer defined benefit plans. The bill also makes some technical corrections to prior legislation.
The act also provides for tax-favored accounts under new Sec. 529A that will allow disabled individuals to save money for their disability expenses and contains offsets to pay for the anticipated revenue lost from the creation of these accounts. Offsets include:
- Amending the definition of personal holding company income to exclude dividends received by U.S. shareholders from controlled foreign corporations;
- Instituting inflation adjustments for certain civil penalties (see below);
- Enacting a new Sec. 3511, allowing for certified professional employer organizations, which will be treated as an employer for work-site employees performing services for customers of the organization for employment tax purposes.
Earlier proposals to permanently extend some expired provisions or to extend all provisions two years, through 2015, were not adopted.
Tax incentives for individuals
Tax incentives for individuals that were extended through 2014 include:
- The Sec. 62 deduction for certain expenses of elementary and secondary school teachers;
- The Sec. 108 exclusion from gross income of discharge of qualified principal residence indebtedness;
- The Sec. 132 provision providing parity between employer-provided mass transit and parking benefits;
- The Sec. 163 treatment of mortgage insurance premiums as qualified residence interest;
- The Sec. 164 deduction for state and local general sales taxes;
- The Sec. 170 special rule for contributions of capital gain real property made for conservation purposes;
- The Sec. 222 above-the-line deduction for qualified tuition and related expenses; and
- The Sec. 408 provision allowing tax-free distributions from individual retirement plans for charitable purposes.
Tax incentives for businesses
Business tax incentives extended through 2014 include:
- The Sec. 41 R&D credit;
- The Sec. 42 temporary minimum low-income housing tax credit rate for nonfederally subsidized buildings;
- The military housing allowance exclusion for determining whether a tenant in certain counties qualifies as low-income under the Housing Assistance Tax Act of 2008, P.L. 110-289;
- The Sec. 45A Indian employment tax credit;
- The Sec. 45D new markets tax credit (and carryovers of the unused limitation are extended through 2019);
- The Sec. 45G railroad track maintenance credit;
- The Sec. 45N mine rescue team training credit;
- The Sec. 45P employer wage credit for employees who are active duty members of the uniformed services;
- The Sec. 51 work opportunity tax credit;
- Sec. 54E qualified zone academy bonds;
- The Sec. 168 provision classifying certain racehorses as three-year property;
- The Sec. 168 provision allowing 15-year straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements;
- The Sec. 168 provision allowing a seven-year recovery period for motorsports entertainment complexes;
- The Sec. 168 provision allowing accelerated depreciation for business property on an Indian reservation;
- Sec. 168 bonus first-year depreciation (for certain property with longer production periods, the property must be placed in service before Jan. 1, 2016);
- The Sec. 168 election to accelerate the alternative minimum tax credit in lieu of bonus depreciation (and special rules were added for round 4 extension property);
- The Sec. 170 enhanced charitable deduction for contributions of food inventory;
- The increased expensing limitations and treatment of certain real property as Sec. 179 property;
- The Sec. 179E election to expense mine safety equipment;
- The Sec. 181 special expensing rules for certain film and television productions;
- The Sec. 199 deduction allowable with respect to income attributable to domestic production activities in Puerto Rico;
- The Sec. 512 modification of tax treatment of certain payments to controlling exempt organizations;
- The Sec. 871 treatment of certain dividends of regulated investment companies (RICs);
- The Sec. 897 treatment of RICs as qualified investment entities under the Foreign Investment in Real Property Tax Act, P.L. 96-499;
- The subpart F exception for active financing income;
- The Sec. 954 lookthrough treatment of payments between related controlled foreign corporations under foreign personal holding company rules;
- The Sec. 1202 exclusion of 100% of gain on certain small business stock;
- The Sec. 1367 allowance for basis adjustments to stock of S corporations making charitable contributions of property;
- The Sec. 1374 reduction in S corporation recognition period for built-in gains tax;
- Sec. 1391 empowerment zone tax incentives;
- The Sec. 7652 temporary increase in the limit on cover over of rum excise taxes to Puerto Rico and the Virgin Islands; and
- The American Samoa economic development credit under the Tax Relief and Health Care Act of 2006, P.L. 109-432.
Energy tax incentives
Various energy tax provisions extended through 2014 include:
- The Sec. 25C credit for nonbusiness energy property;
- The Sec. 30C credit for alternative fuel vehicle refueling property;
- The Sec. 40 second-generation biofuel producer credit;
- The Sec. 40A incentives for biodiesel and renewable diesel;
- The Sec. 45 production credit for Indian coal facilities placed in service before 2009;
- The Sec. 45 credits with respect to facilities producing energy from certain renewable resources;
- The Sec. 45L credit for energy-efficient new homes;
- The Sec. 168 special allowance for second-generation biofuel plant property;
- The Sec. 179D deduction for energy-efficient commercial buildings;
- The Sec. 451 special rule for sales or dispositions to implement Federal Energy Regulatory Commission or state electric restructuring policy for qualified electric utilities; and
- The Secs. 6426 and 6427 excise tax credits relating to certain fuels.
Pension plan provisions
Finally, two provisions affecting multiemployer defined benefit pension plans were extended through 2015:
- The Sec. 431 automatic extension of amortization periods; and
- The shortfall funding method and endangered and critical rules under the Pension Protection Act of 2006, P.L. 109-280.
Inflation-adjusted civil penalties
The following penalties are adjusted for inflation after 2014:
- The Sec. 6651 penalty for failure to file a tax return or pay tax;
- The Sec. 6652(c) penalty for failure to file certain information returns;
- The Sec. 6695 return preparer penalty;
- The Sec. 6698 penalty for failure to file a partnership return;
- The Sec. 6699 penalty for failure to file an S corporation return;
- The Sec. 6721 penalty for failure to file correct information returns; and
- The Sec. 6722 penalty for failure to furnish correct payee statements.
Alistair M. Nevius is the JofA’s editor-in-chief, tax. To comment on this article or to suggest an idea for another article, contact him at email@example.com or 919-402-4052.
Filing Season Quick Guide update
The Tax Increase Prevention Act of 2014 affects three items on the Filing Season Quick Guide published in the January 2015 JofA and included with updates in this issue:
- Under “Tax Credits,” the Sec. 25C credit for nonbusiness energy property is no longer expired. The updated entry says: Sum of 10% of qualified energy-efficiency improvements plus residential energy property expenditures, up to $500 maximum aggregate credit for years after 2005.
- Under “Sec. 179 and Bonus Depreciation,” the Sec. 179 limits are now: $500,000, with $2 million threshold limit.
- The updated bonus depreciation entry says: Additional 50% first-year depreciation for qualifying property.
Click here for an updated PDF of the Filing Season Quick Guide.