Tax Increase Prevention Act of 2014 Retroactively Extends Tax Breaks

On December 3, 2014, the House of Representatives passed the Tax Increase Prevention Act of 2014 (H.R. 5771). The bill, which passed with bipartisan support, contains a one-year retroactive extension of most (but not all) of the temporary tax deductions, credits and incentives that expired at the end of 2013.

The House subsequently combined the extenders bill with the Achieving a Better Life Experience (ABLE) Act of 2014 that was also passed on a bipartisan basis on December 3. The ABLE Act would create tax-free savings accounts allowing certain individuals with disabilities and their caregivers to pay for certain qualified disability expenses.

We’ve included below a summary of what has and has not been extended, as well as next steps with this legislation.

What’s Included?

Business Credits and Incentives

• R&D credit
• 50% bonus depreciation (including the election to accelerate AMT credits in lieu of bonus depreciation)
• Increased § 179 limits ($500,000/$2,000,000) and the expanded definition of § 179 property
• The subpart F exception for active financing income
• Look-through treatment of payments between related controlled foreign corporations under the foreign personal holding company rules
• 15-year straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements
• Reduction in recognition period for S corporation built-in gains tax

Energy Tax Incentives

• The production tax credit for wind and other alternative forms of energy
• The credit for alternative fuel vehicle refueling property
• The deduction for energy-efficiency improvements to commercial buildings
• The credit for construction of energy-efficient new homes
• The deduction for energy-efficiency improvements to existing homes

Charitable Giving

• The basis adjustment to stock of S corporations making charitable contributions of property
• The deduction for charitable contributions of food inventory
• Tax-free distributions from individual retirement plans by individuals age 70-1/2 and older for charitable purposes
• Special rules for contributions of capital gain real property made for conservation purposes

Individual Tax Incentives

• The deduction for state and local general sales taxes
• Above-the-line deduction for qualified tuition and related expenses
• The income exclusion for employer-provided mass transit and parking benefits
• Premiums for mortgage insurance deductible as interest that is qualified residence interest

Other

• The Work Opportunity Tax Credit

What’s Not Included?

• Placed-in-service date for partial expensing of certain refinery property
• Credit for energy-efficient appliances
• Health insurance tax credits for certain unemployed individuals

Other Provisions
 
In addition to addressing most of the expired 2013 extenders, H.R. 5771 would extend through 2015 two current-law provisions scheduled to sunset at the end of this year that (1) permit multiemployer defined benefit pension plans to take an additional five years to amortize funding shortfalls and (2) provide special rules allowing severely underfunded multiemployer plans to start or stop using the shortfall funding method without obtaining approval from the Treasury Department. (These provisions were originally enacted under the Pension Protection Act of 2006.)

Next Steps

The bill next heads to the Senate – no timetable has been given for when the Senate will consider the bill.  However, the ABLE Act has broad bipartisan support, and it is believed that the House Republicans linked the extenders with ABLE in order to make it difficult for Senate Democrats to vote against the combined package.

The Senate may push to get a two-year extenders bill through similar to one that was approved by Senate tax writers in April. However, it appears increasingly likely that the Senate will just accept a one-year extenders bill in the wake of the House vote; aides have said it is probable that the Senate will accept a one-year extenders package. With less than a week left before the Senate adjourns, it seems increasingly likely that the current package will pass.

Permanent Extenders

Permanent extenders have been shelved at this time. The Obama administration has stated it may veto any permanent extension (including the proposed Camp-Reid agreement), saying it would not accept any deal that “permanently extends business tax credits” without also “providing critical tax benefits for middle class families.”

For more information on this and other tax issues, and how they may apply to your business, please contact Sean Muller, Partner-in-Charge, Southwest Texas Tax and Strategic Business Services, at 832.320.3293 or sean.muller@weaver.com.