And now… we have our Tax Extenders

iStock_000025205208LargeCongress recently passed the “Tax Increase Prevention Act of 2014,” which the President has signed.  The Act extends numerous tax breaks that had expired for tax year 2014 and makes these tax breaks retroactive to January 1, 2014.  These extenders are good until December 31, 2014.  So, for these tax breaks to apply in 2015, another extender bill would need to be passed.

Some of the key individual tax breaks are:

  • Taxpayers that are older than 70½ can again make charitable contributions directly from their Individual Retirement Account (IRA) to a charity, up to $100,000.  Although the taxpayer cannot take a charitable deduction, the taxpayer does not have to report the distribution as income.  This helps to reduce income, which can help maintain the availability of other deductions.
  • A deduction of up to $250 (above the line) for primary and secondary school teachers, called the “Education Expenses.”
  • Above the line deduction for qualified tuition expenses that allows for a deduction of up to $4,000 for a taxpayer with AGI below $65,000 ($130,000 for married filing jointly) and $2,000 for a taxpayer with AGI below $80,000 ($160,000 for married filing jointly).
  • Certain taxpayers can deduct mortgage insurance premiums (PMI).  The deduction begins to be phased out when the taxpayer’s AGI is in excess of $100,000 and is completely phased out at $110,000 (cut these numbers in half for married filing separately).
  • State and local sales taxes can continue to be deducted, in lieu of state and local income taxes.  This is a benefit for taxpayers who itemize their deductions and pay more in state and local sales taxes than state and local income tax.  This is particularly helpful in states in which there is no income tax.
  • Exclusion for discharge of indebtedness from principal residence has been extended.  Typically, discharge or cancellation of indebtedness is income.  However, discharge of up to $2,000,000 can be excluded for debt related to a principal residence.

Some of the key business breaks are:

  • Extension of expensing limit on certain business property under Section 179 was scheduled to decrease to $25,000.  The extension allows expensing of up to $500,000 in the year in which the property is purchased and placed in service.
  • Bonus depreciation has also been extended.  Under bonus depreciation, 50% of the purchase price of business property can be deducted in the year in which the property is placed in service.  The remaining cost of the property is then eligible for regular depreciation.
  • Qualified Leasehold Improvements and Retail and Restaurant Property Improvements can be written off over 15 years.  Prior to the extension these expenditures needed to be deducted over 39 years.

The above is a list of some of the more popular provisions of the extender bill.  There are numerous other provisions not discussed above.  Please contact us if you have questions on how these, or other extenders, may be applicable to you, or your business.  Duck


About Allen Falke

Allen joined Mirick O’Connell as Of Counsel in June 2014. He is a member of the Firm’s Business and Trusts and Estates Groups. He focuses his practice on tax law and estate and business planning. Allen provides estate planning for high-net-worth individuals and succession planning for business clients. He advises clients on tax matters related to business acquisitions and restructuring, and business formations and combinations. He reviews and advises clients on estate, gift, individual, corporate, partnership, and fiduciary tax compliance matters. He also has extensive experience representing clients on audits with taxing authorities.
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