Tax Provisions Retroactively Extended by the Tax Increase Prevention Act of 2014

The long-awaited decision on tax extensions was announced on Dec. 16, 2014, when Congress passed the Tax Increase Prevention Act of 2014 (TIPA), which the President signed into law on December 19, 2014. The Act extends a host of tax breaks for businesses and individuals retroactively to January 1, 2014. The following are selected provisions: 

Research Credit Extended
The research credit equals the sum of:

  1.  20% of the excess (if any) of the qualified research expenses for the tax year over a base amount (unless the taxpayer elected an alternative simplified research credit)
  2. The university basic research credit (i.e., 20% of the basic research payments)
  3.  20% of the taxpayer’s expenditures on qualified energy research undertaken by an energy research consortium.

Work Opportunity Tax Credit Extended
The Work Opportunity Tax Credit (WOTC) allows employers who hire members of certain targeted groups to get a credit against income tax of a percentage of first-year wages up to $6,000 per employee or $3,000 for qualified summer youth employees. Where the employee is a long-term family assistance (LTFA) recipient, the WOTC is a percentage of first and second year wages, up to $10,000 per employee. Generally, the percentage of qualifying wages is 40% of first-year wages; 25% of the first-year wages for employees who have completed at least 120 hours, but less than 400 hours of service for the employer. For LTFA recipients, it includes an additional 50% of qualified second-year wages.

The maximum WOTC for hiring a qualifying veteran generally is $6,000. However, it can be as high as $12,000, $14,000, or $24,000, depending on factors such as whether the veteran has a service-connected disability, the period of his or her unemployment before being hired, and when that period of unemployment occurred relative to the WOTC-eligible hiring date.

New Markets Tax Credit Extended
A new markets tax credit applies for qualified equity investments to acquire stock in a community development entity (CDE). The credit is 5% for the year in which the equity interest is purchased from the CDE and for the first two anniversary dates after the purchase, for a total credit of 15%, plus 6% on each anniversary date thereafter for the following four years, for a total of 24%.

Enhanced Deduction for Food Inventory Extended
A taxpayer engaged in a trade or business is eligible to claim an enhanced deduction for donations of food inventory. A C corporation’s deduction equals the lesser of:

  • Basis plus half of the property’s appreciation, or
  • Twice the property’s basis, for contributions of food inventory that was apparently wholesome food—i.e., meant for human consumption and meeting certain quality and labeling standards.

For a taxpayer other than a C corporation, the aggregate amount of contributions of apparently wholesome food that may be taken into account for the tax year can not exceed 10% of the taxpayer’s aggregate net income for that tax year from all trades or businesses from which those contributions were made for that tax year.

Reduction in S Corp Recognition Period for Built-In Gains Tax Extended
The law provides that for determining the net recognized built-in gain for tax years beginning in 2014, the recognition period is a five-year period—the same rule that applied to tax years beginning in 2012 and 2013.

Bonus First-Year Depreciation Extended
The law extends 50% first-year bonus depreciation for one year so that it applies to qualified property acquired and placed in service before January 1, 2015; before January 1, 2016 for certain longer-lived and transportation property.

Boosted Expensing Amounts for 2014
The increased $500,000 maximum expensing amount under Code Sec. 179 and the increased $2 million investment-based phaseout amount are retroactively extended for one year. These increased amounts will apply for qualified property placed in service before January 1, 2015. For tax years beginning after 2014, the maximum expensing amount is again scheduled to drop to $25,000 and the investment-based phaseout amount is scheduled to drop to $200,000.

15-Year Writeoff for Qualified Leasehold and Retail Improvements and Restaurant Property Extended
The law extends for one year the inclusion of qualified leasehold improvement property, qualified restaurant property and qualified retail improvement property in the 15-year MACRS class. Such property qualifies for 15-year recovery if it is placed in service before January 1, 2015.

Above-the-Line Deduction for Educator Expenses Extended
Eligible elementary and secondary school teachers may claim an above-the-line deduction for up to $250 per year of expenses paid or incurred for books, certain supplies, computer and other equipment, and supplementary materials used in the classroom.

Exclusion for Discharged Home Mortgage Debt Extended
Discharge of indebtedness income from qualified principal residence debt, up to a $2 million limit ($1 million for married individuals filing separately) is excluded from gross income.

State and Local Sales Tax Deduction Extended
Taxpayers who itemize deductions may elect to deduct state and local general sales and use taxes instead of state and local income taxes.

Liberalized Rules for Qualified Conservation Contributions
The law retroactively extends for one year the 50% and 100% limitations on qualified conservation contributions of appreciated real property so that they apply to contributions made in tax years beginning before January 1, 2015.

Nontaxable IRA Transfers to Eligible Charities Extended
Taxpayers who are age 70 ½ or older can make tax-free distributions to a charity from an Individual Retirement Account (IRA) of up to $100,000 per year. These distributions are not subject to the charitable contribution percentage limits since they are neither included in gross income nor claimed as a deduction on the taxpayer’s return. The law extends this provision for one year so that it’s available for charitable IRA transfers made in tax years beginning before January 1, 2015.

For more information about these extensions and how they will specifically impact you, contact your Anders tax advisor.