Congress Passes One-Year Extension of Business and Individual Tax Provisions
BY: JENNY H. CONNORS, ANNA K. DEREWENDA AND KYLE H. WINGFIELD
On December 16, 2014, the Senate voted 76-16 to pass H.R. 5771, the Tax Increase Prevention Act of 2014 (“TIPA”), which was passed by the House by a vote of 378-46 on December 3, 2014. TIPA would extend over fifty (50) currently expired tax provisions relating to businesses and individuals through the 2014 tax year. TIPA also would create a new tax-advantaged savings account for disabled persons and make a number of technical corrections to previously enacted tax law. President Obama is expected to sign TIPA into law.
This Alert provides an overview of several important tax provisions affecting businesses and individuals contained in TIPA. Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations. Prior results do not guarantee a similar outcome. You should consult your own tax advisor regarding the United States federal, state, local, non-U.S. and other tax consequences of the provisions of TIPA.
GENERAL BUSINESS TAX PROVISIONS
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Exclusion of 100% of |
TIPA extends the 100% exclusion and the exception from alternative minimum tax treatment from gain on “qualified small business stock” for one (1) year to stock acquired before January 1, 2015. See IRC § 1202(a)(4), as amended by TIPA § 136(a). |
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New Markets Tax Credit |
TIPA retroactively extends the new markets tax credit for one (1) year through 2014 and provides up to $3.5 billion in qualified equity investments for the 2014 calendar year. The carryover period for unused new markets tax credits also is extended for one (1) year through 2019. See IRC § 45D(f), as amended by TIPA § 115(a) and 115(b). |
| Research Credit | IPA retroactively extends the research credit for one (1) year to apply to amounts paid or accrued before January 1, 2015. See IRC § 41(h)(1), as amended by TIPA § 111(a). |
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Small Business Expensing |
TIPA retroactively extends for one (1) year the increased $500,000 maximum expensing amount under IRC § 179 and the increased $2 million investment-based phase-out amount. The increased amounts apply for qualified property placed into service before January 1, 2015. See IRC § 179(b), as amended by TIPA § 127. |
| Work Opportunity Tax Credit | TIPA retroactively extends the working opportunity tax credit so that it applies to eligible veterans and nonveterans who begin work for the employer before January 1, 2015. See IRC § 51(c)(4)(B), as amended by TIPA § 119(a). |
DEPRECIATION AND EXPENSING PROVISIONS
| Bonus First-Year Depreciation | TIPA extends 50% first-year bonus depreciation for one (1) year so that it applies to qualified property acquired and placed in service before January 1, 2015 (before January 1, 2016 for certain other property). See IRC § 168(k)(2), as amended by TIPA § 125(a). |
| Extended Choice to Forgo Bonus Depreciation and Claim Credits | TIPA extends for one (1) year the election to increase the AMT limitation in lieu of bonus depreciation so that it applies to property placed in service before January 1, 2015 (January 1, 2016 in the case of certain other property). See IRC §§ 168(k)(4)(d) and 168(k)(4)(J), as amended by TIPA § 125(c). |
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Qualified Leasehold and |
TIPA retroactively extends for one (1) 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. See IRC §§ 168(e)(3)(E) and 168(e)(8)(E), as amended by TIPA § 122(a). |
ENERGY CREDITS AND DEDUCTIONS
| Energy Efficient Commercial Buildings Deduction | A deduction is allowed in an amount equal to the cost of an “energy efficient commercial building property” placed in service during the tax year. Prior to TIPA, the deduction did not apply to property placed in service after December 31, 2013. TIPA retroactively extends the deduction for one (1) year to property placed in service before January 1, 2015. See IRC § 179D(h), as amended by TIPA § 158(a). |
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Renewable Electricity |
A renewable electricity production credit is allowed for the production of electricity from qualified energy resources at qualified facilities. Prior to TIPA, the construction of a qualifying facility had to begin before January 1, 2014. TIPA retroactively extends the date by which construction of a qualifying facility must begin for one (1) year to December 31, 2014. See IRC § 45(d), as amended by TIPA § 155(a). |
S CORPORATIONS
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Reduction in S Corp Recognition |
TIPA provides that for purposes of determining the net recognized built-in gain for tax years beginning in 2014, the recognition period is a five (5)-year period, which is the same rule that applied to tax years beginning in 2012 and 2013. See IRC § 1374(d)(7)(C), as amended by TIPA § 138(a). |
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Shareholder Basis Adjustments for |
The Pension Protection TIPA of 2006 (“PPA”) provides that the amount of a shareholder's basis reduction in S stock by reason of a charitable contribution made by the corporation is equal to his pro rata share of the adjusted basis of the contributed property. Prior to TIPA, the PPA rule did not apply for contributions made in tax years beginning after December 31, 2013. TIPA retroactively extends the PPA rule for one (1) year so that it applies for contributions made in tax years beginning before January 1, 2015. See IRC §1367(a)(2), as amended by TIPA § 137(a). |
INTERNATIONAL TAX PROVISIONS
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Look-Through |
TIPA retroactively extends look-through treatment for certain payments between related CFCs for one (1) year to tax years of a foreign corporation before January 1, 2015, and tax years of U.S. shareholders with or within which such tax years of foreign corporations end. See IRC § 954(c)(6)(C), as amended by TIPA § 135(a). |
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Subpart F Exception for Active Financing Income |
TIPA retroactively extends the exclusions for active financing income for one (1) year to tax years of a foreign corporation beginning after December 31, 2013 and before January 1, 2015, and tax years of U.S. shareholders with or within which such tax years of foreign corporations ended. See IRC §§ 953(e)(10) and 954(h)(9), as amended by TIPA §§ 134(a) and 134(b)) |
INDIVIDUAL INCOME TAX PROVISIONS
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Deduction for State and Local General Sales Taxes. |
Taxpayers who itemize deductions may elect to deduct state and local general sales and use taxes instead of state and local income taxes. Prior to TIPA, the election was unavailable for tax years beginning after December 31, 2013. TIPA retroactively extends this provision for one (1) year so that taxpayers who itemize their deductions may elect to deduct state and local sales and use taxes instead of state and local income taxes for tax years beginning before January 1, 2015. See IRC § 164(b)(5)(I), as amended by TIPA Sec. 105(a). |
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Discharge of Indebtedness on Principal Residence |
Discharge of indebtedness income from qualified principal residence debt (up to a $2 million limit or $1 million for married individuals filing separately) is excluded from gross income. Prior to TIPA, the exclusion did not apply to any debt discharged after Dec. 31, 2013. TIPA extends the exclusion so that it applies to home mortgage debt discharged before January 1, 2015. See IRC § 108(a)(1)(E), as amended by TIPA § 102(a). |
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