The Tax Increase Prevention Act of 2014

December 22, 2014

The U.S. House of Representatives and the U.S. Senate have approved H.R. 5771, the Tax Increase Prevention Act of 2014, which extends almost all of the tax incentives that expired on December 31, 2013. President Obama signed H.R. 5771 into law on Saturday, December 20. The $42 billion in reinstated tax incentives can only be claimed for the 2014 tax year which will be fortunate for millions of businesses and individuals.

The following are the highlights for businesses:

  • Election to Deduct Depreciable Business Assets. Increased expensing limitations and treatment of certain real property as section 179 property. Businesses can deduct up to $500,000 used to purchase assets placed in service before 2015.
  • Bonus Depreciation. The return of 50% bonus depreciation on eligible assets which allows a company to deduct half the cost of new capital purchases in the first year.
  • Fifteen-Year Straight Line Depreciation for Qualified Leasehold Improvements. 15-year straight line recovery periods for qualified leasehold, restaurant, and retail property improvements. This creates a 15-year depreciation life for certain property.
  • Research Credit. Reinstatement of the R&D tax credit which applies to qualified research expenses incurred through December 31, 2014.
  • Temporary Exclusion of Gain on Small Business Stock. Bill extends the exclusion from income of 100% of gain on sale of certain small business stock. Various rules apply and the stock needs to be held for more than five years.
  • Shortened Recognition Period for Certain Built-in Gains of S Corporations. Reduction in S corporation recognition period for built-in gains tax. For businesses that convert to an S corporation, the conversion is not a taxable event. However, following the conversion, the business must hold its assets for ten years to avoid a tax on any built-in gains existing at the time of conversion. This period has been reduced to five years.

The following are the highlights for individuals:

  • Tax-Free Distribution from IRAs. Tax free distributions from IRAs to certain public charities for individuals age 70 ½ or older, not to exceed $100,000 per taxpayer per year.
  • Election to Deduct State and Local General Sales Taxes in Lieu of State and Local Income Taxes. Allows individuals who live in states without an income tax to deduct state and local sales taxes on their federal returns.
  • Qualified Tuition Expenses. Above-the-line deduction for qualified tuition and related expenses.
  • Above the Line Deduction for Teacher’s Expenses. Reinstatement of the tax deduction for teachers who pay out of pocket for classroom supplies.
  • Credit for Non-Business Energy Property. Credit for certain non-business energy property. This is a credit up to $500 for home energy efficiency retrofits that help consumers afford efficiency upgrades, including water heaters, boilers, and furnaces.