The Tax Increase Prevention Act of 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 January 31, 2013. President Obama is expected to sign H.R. 5771 into law this week. The $42 billion in reinstated tax incentives can only be claimed for the 2014 tax year which will be fortuitous for millions of businesses and individuals. 

The following are the highlights for businesses:

• Increased expensing limitations and treatment of certain real property as section 179 property. Businesses can deduct the cost of equipment placed in service in 2014 up to $500,000.
• 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.
• 15-year straight line recovery periods for qualified leasehold, restaurant and retail property improvements. This creates a 15 year depreciation life for certain property.
• Reinstatement of the R&D tax credit which applies toqualified research expenses incurred through December 31, 2014.
• Exclusion of 100% of gain on certain small business stock can be excluded from income. Various rules apply and the stock needs to be held for more than five years.
• Reduction in S corporation recognition period for built in tax gains. For businesses that convert to an S corporation, the conversion is not a taxable event. However, following the conversion, the entity must hold the assets for ten years to avoid a tax on any built in gains at the time of conversion. This period has been reduced to five years.

The following are the highlights for individuals:

• 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.
• Allow individuals who live in states without an income tax to deduct state and local sales taxes on their federal returns.
• Above-the-line deduction for qualified tuition and related expenses.
• Reinstatement of the tax deduction for teachers who pay out of pocket for classroom supplies.
• Credit for section 25C 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.