On Tuesday evening, the Senate passed bill H.R. 5771, known as the Tax Increase Prevention Act of 2014, to retroactively extend more than fifty expired tax provisions through 2014. The extender bill passed the House of Representatives on December 3rd and will now to go President Obama for his signature. The bill temporarily extends a host of individual, business and energy tax breaks, including the following most common incentives:
Tax incentives for individuals that are extended through 2014 include:
Deduction for teachers’ expenses: This measure lets school teachers (K-12) deduct up to $250 for the costs of classroom supplies that they buy with their own money. It’s available to all teachers, whether they itemize or not. Qualified expenses must be reduced by any reimbursements from the taxpayer’s employer.
State and local sales tax deduction: If you itemize your taxes, this measure lets you deduct the state and local sales taxes you’ve paid in lieu of state income taxes.
Tuition deduction: Among the many education tax breaks on the books, this one is available to all tax filers, whether you itemize or not. With it, you may deduct up to $4,000 in qualified tuition, fees and related expenses for post-secondary education, such as college and graduate school. The deduction may be taken for yourself, your spouse or your dependents.
Deduction for mortgage insurance premiums: If you only put down a small amount to buy a home you may be required to pay for mortgage insurance to protect the lender against default. This provision allows you to treat mortgage insurance premiums as deductible interest on a qualified residence.
Income exclusion for mortgage debt that’s been forgiven: When you sell your home for less than what you owe the bank or your home is foreclosed, the bank may agree to forgive the remaining debt you owe. But the IRS typically treats that forgiven debt as taxable income to you. This tax break allows you exclude from income up to $2 million of cancellation of mortgage debt on a principal residence.
Tax-free IRA withdrawals for charity: With this measure, individuals over 70 1/2 may take tax-free distributions of up to $100,000 from a traditional IRA if the money is distributed directly to an eligible charity. For taxpayers filling a joint income tax return, his or her spouse can also take a tax-free distribution of up to $100,000 from their traditional IRA.
Code Section 25C Credit: This non-business energy property credit rewards taxpayers who make qualified energy efficiency improvements to residential property.
Tax incentives for businesses that are extended through 2014 include:
Bonus Depreciation: Bonus depreciation allows taxpayers to claim an additional first-year depreciation deduction. The bill extends 50% bonus depreciation on qualified property placed in service during 2014. Only new property is eligible for bonus depreciation.
Code Section 179 Expensing: “Section 179” allows taxpayers to immediately deduct, rather than gradually depreciate, the cost of qualified assets place into service, subject to certain limitations. The extenders package sets the dollar limitation at $500,000 for 2014 with a $2 million overall investment limit.
Work Opportunity Tax Credit (WOTC): Employers that hire military veterans and other qualified individuals may be eligible for the WOTC. The credit amount is generally up to $6,000 in qualified firs-year wages.
For more information on the Tax Increase Prevention Act of 2014 and how you might benefit from one or more of the extended incentives, please contact our office.