On Friday, December 19th, 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 through December 31, 2014. The extension could result in a tax break for businesses and individuals who have already made certain expenditures this year, and also provides an incentive for some last-minute spending to take advantage of the expiring provisions.
TIPA preserves expiring provisions for both individuals and businesses. For individuals, provisions preserved by TIPA include the following:
- The deduction for state and local general sales tax in lieu of state and local income taxes. This is most beneficial for those living in states with no state income tax.
- The deduction of up to $4,000 of 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 preserved by TIPA include the following:
- 50% bonus depreciation in the first year for new capital purchases.
- The option to expense, rather than capitalize, up to $500,000 for purchases of Section 179 property.
- The research and development tax credit.
- The new markets tax credit.
- The work opportunity tax credit.
- The 100% exclusion from gross income of gain from the sale of small business stock.
- The basis adjustment rule for stock of an S corporation making charitable contributions of property.
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 the potential for a further extension when tax planning for 2015.