Senate Takes a Fresh Look at 'Dead' Tax Breaks
It took several months, but at least one tax-writing committee in our nation's capital has finally cleared the decks to address the annual list of tax extenders. This includes a group of popular tax provisions that technically expired or were scaled back when the clock struck midnight on December 31, 2013. Unless a divisive Congress approves them, these tax breaks will be wiped off the books, perhaps forever.
To this end, on April 1 the new head of the Senate Finance Committee Ron Wyden (D-OR), succeeding longtime chairman Max Baucus (D-MT), unveiled a marked–up bill extending most of the 55 or so provisions currently in limbo. Typically, Congress acts on these extenders closer to the beginning of the new year, but other pressing matters took precedence in 2014. In any event, retroactive extensions have been approved in the past.
Below are 10 of the most significant extenders included in the new Senate Finance Committee legislation. (More details are available from the committee.)
Other Key Items
Some of the other extenders under consideration:
- $250 above-the-line deduction for certain expenses of elementary and secondary teachers
- Research and experimentation credit
- New markets tax credit
- Employer wage credit for activated military reservists
- Three-year depreciation for racehorses
- Enhanced charitable deduction for food inventory
- Election to accelerate AMT credits in lieu of additional first-year depreciation
- Basis adjustment to stock of S corporations making charitable contributions of property
- Reduction in S corporation recognition period for built-in gains tax
- Various business energy incentives
There were, however, a few notable omissions from the legislation, including the residential energy credit, the credit against health insurance costs for eligible individuals and special rules for donations of real estate made for conservation purposes. Of course, these tax provisions may still be tacked on as the bill winds its way through the process.
- Tuition–and-fees deduction: Subject to a phaseout, parents of college students may take an above-the-line deduction for tuition and related fees. The $2,000 or $4,000 write-off would be allowed for two more years.
- State sales taxes: A special election allowed taxpayers to deduct state sales tax in lieu of state and local income taxes. This optional tax deduction would be extended through 2015.
- Section 179 deductions: The maximum $500,000 Section 179 deduction, with a $2 million phaseout level, would be restored for one more year. Currently, the allowance plummets to $25,000, with just a $200,000 phaseout level.
- Bonus depreciation: With limited exceptions, 50 percent bonus depreciation for qualified property expired after 2013. This tax break for businesses would be retroactively extended through 2015.
- Building improvements: Previously, a business could use a 15-year depreciation period for qualified leasehold improvements, qualified restaurant buildings and improvements. The faster write-off period would be extended for two years.
- IRA rollovers to charity: Under prior law, a taxpayer age 70 1/2 or over could roll over up to $100,000 from an IRA to charity without any tax consequences. The tax-free rollover provision would be restored for two years.
- Qualified small business stock (QSBS): The tax exclusion on gain was reduced from 100 percent to 50 percent for QSBS acquired after 2014. The legislation retains the 100 percent exclusion for stock acquired before 2016.
- Mortgage debt forgiveness: Prior to 2014, homeowners could exclude tax due on a mortgage debt forgiveness on a principal residence of up to $2 million. This provision would be extended through 2015.
- Mass transit benefits: To achieve parity with other transportation benefits, the tax exclusion for mass transit benefits was increased to $245 per month. The legislation would prevent the exclusion from dropping back to $130 per month for two more years.
- Work Opportunity Tax Credit (WOTC). Generally, a business was able to claim a maximum WOTC of $2,400 for each worker hired from certain target groups. The basic WOTC would be available thorough 2015.
Although the House has yet to weigh in, the "smart money" appears to favor enactment of some form of tax extender legislation before the end of the year. Nevertheless, in this contentious political climate, all bets are off.