Tax Law Alert: The Tax Increase Prevention Act of 2014 Extends Expired or Expiring Provisions

Congress this week passed the Tax Increase Prevention Act of 2014 (the Act), which is expected to be signed by President Obama at any time. The Act renews or extends a number of expired or expiring provisions. Some of the more noteworthy include:

EXTENDERS FOR INDIVIDUALS

Several provisions benefiting individuals were extended through the end of 2014, including the election to deduct state and local general sales taxes in lieu of state and local income taxes, the exclusion from income for certain discharged home mortgage debt, the above-the-line deduction for certain teacher classroom expenses, the above-the line deduction for qualified tuition and related expenses, the treatment of mortgage insurance premiums as qualified residence interest, the special rule for charitable contributions of capital gain property for conservation purposes, benefits related to employer-provided mass transit and parking, and the allowance of tax-free distributions from an IRA for certain charitable purposes.

EXTENDERS FOR BUSINESSES

• Bonus Depreciation. The allowance of bonus depreciation is extended to certain property placed in service before 2015 or, in some limited circumstances, before 2016.
• Election to Deduct Depreciable Business Assets. The election to deduct up to $500,000 of the cost of certain depreciable business assets, including computer software and certain personal property, is extended to taxable years beginning in 2014.
• Extension of Temporary Exclusion of 100 Percent of the Gain on Certain Small Business Stock. The temporary 100 percent exclusion of gain from the sale or exchange of certain small business stock is extended to apply to such stock acquired during 2014.
• Fifteen-Year Straight Line Depreciation for Qualified Leasehold Improvements, Qualified Retail Improvements, and Qualified Restaurant Improvements. The 15-year recovery period is extended to include qualified property placed in service before 2015.
• Seven-Year Depreciation Period for Motorsports Entertainment Complexes. The seven-year depreciation period is extended to qualified property placed in service before 2015.
• Accelerated Depreciation for Business Property on Indian Reservations. The accelerated recovery periods applicable to such property are extended to property placed in service before 2015.
• Special Expensing Rules for Certain Film and Television Productions. The election to claim a current deduction of certain expenses related to qualified film and television productions is extended to productions commencing on or before December 31, 2014.
• Deduction with Respect to Domestic Income-Producing Activities in Puerto Rico. The deduction allowable with respect to income attributable to domestic production activities in Puerto Rico is extended to certain taxable years beginning before January 1, 2015.
• Exemption for Certain Dividends of Regulated Investment Companies. The exemption from tax for certain interest-related dividends and short-term capital gain dividends received from a regulated investment company (RIC) is extended to qualified dividends with respect to any taxable year of the RIC beginning on or before December 31, 2014.
• Treatment of Certain RICs as Qualified Investment Entities for FIRPTA Purposes. The Act extends through 2014 the special treatment of certain RICs for FIRPTA purposes.
• Subpart F Exceptions for Exempt Insurance Income and Active Financing Income. These exceptions to Subpart F income are extended through 2014.
• Look-Through Rule for Related Controlled Foreign Corporations. The look-through rule applicable to foreign personal holding company income of certain related controlled foreign corporations (CFCs) is extended through 2014.
• Shortened Recognition Period for Certain Built-in Gains of S Corporations. The shortened five-year recognition period for built-in gains of S corporations is extended to taxable years beginning in 2014.
• Empowerment Zone Designation. The empowerment zone designation is extended to remain in effect through December 31, 2014.

EXTENDED TAX CREDITS

• New Markets Tax Credit. The new markets tax credit is extended through 2014, and the carryover of unused credit is extended through 2019.
• Work Opportunity Tax Credit. The work opportunity tax credit is extended through 2014.
• Research Credit. The research credit is extended through 2014.
• Temporary Minimum Low-Income Housing Tax Credit Rate. The temporary minimum low-income housing tax credit rate is extended through 2014.

EXTENDERS SPECIFIC TO CHARITY

• Shareholder Basis Rule for S Corporation’s Charitable Contribution of Property. The special rule for computing the reduction of a shareholder’s S corporation stock basis by reason of a charitable contribution made by the S corporation is extended to contributions made in taxable years beginning on or before December 31, 2014.
• Tax Treatment of Certain Payments to Controlling Exempt Organizations. The exclusion from unrelated business taxable income of certain payments from controlled entities is extended to payments received or accrued on or before December 31, 2014.

If you have any questions regarding any of the foregoing or any other aspect of the Act, please contact your Stoel Rives attorney or one of the key contributors.