On Friday, December 19th, 2014 President Obama signed the Tax Increase Prevention Act (“TIPA”), H.R. 5771, into law. TIPA is commonly referred to as the “tax extenders” bill as it extends certain expiring provisions of the Internal Revenue Code. The affected provisions are extended retroactively for 2014 and then once again expire after December 31, 2014.
The extended provisions could result in a tax break for businesses and individuals who have already made certain expenditures during 2014.
For individuals, income tax provisions extended by TIPA include the following:
- The deduction for state and local general sales taxes in lieu of state and local income taxes. This is very beneficial for those living in states with no state income tax such as South Dakota.
- The deduction of up to $4,000 for qualified tuition and related educational expenses, which is phased out at an AGI of $65,000 for single filers and $130,000 for joint filers.
- The tax deduction of mortgage insurance premiums.
- The tax exclusion of up to $2 million of imputed income from the discharge of indebtedness on a principal residence.
- The tax exemption of distributions from individual retirement accounts for charitable purposes for individuals aged 70 1/2 or older.
- The above-the-line tax deduction of up to $250 of classroom expenses of elementary and secondary school teachers.
For businesses, the provisions extended by TIPA include the following:
- 50% bonus depreciation in the first year for capital purchases. This applies to new assets but not to used assets.
- The option to expense, rather than capitalize, up to $500,000 for purchases of Section 179 property. This is increased from $25,000.
- The research and development tax credit.
- The work opportunity tax credit.
- The 100% exclusion from gross income of gain from the sale of small business stock.
As these provisions are only preserved retroactively through December 31, 2014, the status of these provisions for 2015 remains unclear. Individuals and businesses should continue to monitor possible future federal legislation for a further extension when tax planning for 2015.