On Dec. 19, President Obama signed legislation to pass more than 50 tax extenders that had expired at the end of 2013. For many individuals and businesses, these deductions and credits can provide substantial tax savings for the 2014 tax year. Below are some of the more significant provisions in the Tax Increase Prevention Act of 2014.



2014 Tax Extender Package for Individuals

  • State and local sales tax deduction. Individuals who itemize their deductions may choose to deduct state and local sales taxes instead of state and local income taxes. This provision may help taxpayers who purchased big-ticket items, such as automobiles, in 2014, as well as taxpayers in states with a sales tax but no state income tax.
  • Higher education expenses. Eligible individuals may continue to deduct qualified tuition and related expenses of the taxpayer, his/her spouse or dependents as an “above-the-line” deduction. The maximum deduction is either $4,000 or $2,000, depending on income.
  • Nontaxable IRA transfers to charities. Favorable tax treatment continues to be available for those taxpayers age 70½ or older who make direct transfers (of up to $100,000) from their individual retirement accounts (IRAs) to qualifying charities. If requirements are met, these contributions will be excluded from income and still count toward the taxpayer’s required minimum distributions.
  • Premiums for mortgage insurance deductible as qualified residence interest. Taxpayers may continue to deduct premiums paid for qualified mortgage insurance as qualified residence interest, provided that their adjusted gross income does not exceed certain levels.
  • Discharge of indebtedness on principal residence. Qualifying taxpayers may continue to exclude from gross income a lender’s discharge of indebtedness on the taxpayer’s principal residence.

2014 Tax Extender Package for Businesses

  • First-year bonus depreciation for qualified property. For qualifying property acquired and placed in service before Jan. 1, 2015, businesses may take advantage of 50 percent first-year “bonus” depreciation. This rule allows businesses to deduct up to half the cost of qualifying property first placed in service in 2014. Qualifying property includes most machinery, equipment or other tangible personal property with a recovery period of 20 or fewer years, certain leasehold improvement property and most computer software.
  • Increased Section 179 expensing. Congress has substantially increased the amount of the allowable expense deduction for Section 179 property. Previously, businesses were allowed to expense up to $25,000 of qualifying Section 179 property placed in service for the 2014 tax year, with that limit subject to further reduction once the amount placed in service exceeded $200,000. Under the new extender legislation, these limits are restored to their previous levels of $500,000 and $2,000,000, respectively.
  • Qualified leasehold/retail improvements and restaurant property. Up to $250,000 of qualified leasehold/retail improvement and restaurant property can be treated as Section 179 property.
  • Research credit. The lucrative research and development tax credit has once again been renewed, impacting a wide range of industries, including aerospace, engineering, manufacturing and food processing. The credit is generally 20 percent of qualified research expenses.
  • Work opportunity tax credit. Employers that hire military veterans and other qualified employees who start work prior to Jan. 1, 2015, can claim a credit generally of 40 percent of up to $6,000 in qualified first-year wages.
  • Reduced recognition period for S corporation built-in gains tax. The five-year recognition period for built-in gains following C to S corporation conversion is extended to sales of assets in 2014.

For assistance applying these extenders to your 2014 return or planning to optimize your 2015 tax strategy, contact our CPAs and tax advisors in Michigan, Houston or Ft. Lauderdale.

 Sources: Wolters Kluwer CCH, DST