On December 16, 2014, Congress passed the “Tax Increase Prevention Act of 2014”, which retroactively extends several tax breaks that had expired at the end of 2013. The President is expected to sign the bill that will extend the credits through the end of 2014.
Here is a summary of the changes which are most likely to impact your situation:
Accelerated Depreciation (also referred to as Section 179) allows taxpayers to accelerate the depreciation deduction for certain machinery and equipment. The new law retroactively extends for one year the increased $500,000 maximum expensing amount and the increased $2,000,000 investment-based phase out amount. These increased amounts will apply to property placed in service before January 1, 2015. For tax years beginning after 2014, the maximum amount is again scheduled to drop to $25,000 and the investment-based phase out amount is scheduled to drop to $200,000.
15-Year Writeoff for Qualified Leasehold and Retail Improvements and Restaurant Property was retroactively extended for one year for the inclusion of qualified leasehold improvement property, qualified restaurant property and qualified retail improvement property in the 15-year asset class for property placed in service before January 1, 2015.
Bonus First-Year Depreciation allows an additional first-year depreciation deduction equal to 50% of the adjusted basis of qualified property purchased and placed in service before January 1, 2015.
Choice to Forego Bonus Depreciation and Claim Credits Instead permits the election to increase the Alternative Minimum Tax (AMT) limitation in lieu of bonus depreciation so that it applies to property placed in service before January 1, 2015.
Research Credit allows companies that are performing certain research and development activities to take a credit on certain qualified expenses. The extension retroactively includes amounts paid or incurred after December 31, 2013.
S-Corporation Built-In Gains Tax Five Year Recognition Period was extended (instead of the generally applicable ten year period). The new law provides that for determining the net recognized built-in gain for tax years beginning in 2014, the recognition period is a 5-year period – the same rule that applied to tax years beginning in 2012 and 2013.
If you would like to discuss how the above changes affect you and your business or your clients’ businesses, please give us a call.