In one of its final actions, the 113th Con­gress passed the Tax Increase Pre­ven­tion Act of 2014. This leg­is­la­tion extends for one year a host of pop­u­lar tax pro­vi­sions (com­mon­ly referred to as “tax exten­ders”) that had expired at the end of 2013. The Pres­i­dent is expect­ed to sign the leg­is­la­tion. All of the fol­low­ing pro­vi­sions were among those retroac­tive­ly extend­ed, and are now effec­tive through the end of 2014.

 

Deduction for qualified higher-education expenses

You may be enti­tled to a deduc­tion if you paid qual­i­fied high­er-edu­ca­tion expens­es dur­ing the year–this includes tuition and fees (for your­self, your spouse, or a depen­dent) for enroll­ment in a degree or cer­tifi­cate pro­gram at an accred­it­ed post-sec­ondary edu­ca­tion­al insti­tu­tion. The deduc­tion does­n’t include pay­ments for meals, lodg­ing, insur­ance, trans­porta­tion, or oth­er liv­ing expens­es. The max­i­mum deduc­tion is gen­er­al­ly $4,000. How­ev­er, if your adjust­ed gross income (AGI) exceeds $65,000 ($130,000 if mar­ried fil­ing joint­ly), your max­i­mum deduc­tion is lim­it­ed to $2,000; if your AGI is greater than $80,000 ($160,000 if mar­ried fil­ing joint­ly), you can’t claim the deduc­tion at all.

 

Deduction for classroom expenses paid by educators

If you’re an edu­ca­tor, you may be able to claim up to $250 of unre­im­bursed qual­i­fied class­room expens­es you paid dur­ing the year as an “above-the line” deduc­tion. Qual­i­fy­ing expens­es can include the cost of books, most sup­plies, com­put­er equip­ment, and sup­ple­men­tary mate­ri­als used in the class­room. Teach­ers, instruc­tors, coun­selors, prin­ci­pals, and aides for kinder­garten through grade 12 are eli­gi­ble, pro­vid­ed a min­i­mum num­ber of hours are worked dur­ing the school year.

 

Deduction for state and local general sales tax

If you item­ize deduc­tions on Sched­ule A of IRS Form 1040, you can elect to deduct state and local gen­er­al sales tax­es in lieu of the deduc­tion for state and local income tax­es. You can cal­cu­late the total amount of state and local sales tax­es paid by accu­mu­lat­ing receipts show­ing gen­er­al sales tax­es paid, or you can use IRS tables. If you use IRS tables to deter­mine your deduc­tion, in addi­tion to the table amounts you can deduct eli­gi­ble gen­er­al sales tax­es paid on cars, boats, and oth­er spec­i­fied items.

 

Tax-free charitable donations from IRAs

If you’re age 70½ or old­er, you can make a qual­i­fied char­i­ta­ble dis­tri­b­u­tion (QCD) of up to $100,000 from your IRA and exclude the dis­tri­b­u­tion from your gross income. The dis­tri­b­u­tion must be made direct­ly to a qual­i­fied char­i­ty by Decem­ber 31, 2014, and must be a dis­tri­b­u­tion that would oth­er­wise be tax­able to you. QCDs count toward sat­is­fy­ing any required min­i­mum dis­tri­b­u­tions (RMDs) that you would oth­er­wise have to receive from your IRA, just as if you had received an actu­al dis­tri­b­u­tion from the plan. You aren’t able to claim a char­i­ta­ble deduc­tion for the QCD on your fed­er­al income tax return.

 

Deduction for mortgage insurance premiums

Pre­mi­ums paid or accrued for qual­i­fied mort­gage insur­ance asso­ci­at­ed with the acqui­si­tion of your main or sec­ond home may be treat­ed as deductible qual­i­fied res­i­dence inter­est on Sched­ule A of IRS Form 1040. The amount that would oth­er­wise be allowed as a deduc­tion is reduced if your AGI exceeds $100,000 ($50,000 if mar­ried fil­ing sep­a­rate­ly), and no deduc­tion is allowed if your AGI exceeds $109,000 ($54,500 if mar­ried fil­ing sep­a­rate­ly).

 

Bonus depreciation

You may be able to claim an addi­tion­al first-year “bonus” depre­ci­a­tion deduc­tion, equal to 50% of the adjust­ed basis of qual­i­fied prop­er­ty placed in ser­vice dur­ing the year. The addi­tion­al first-year depre­ci­a­tion deduc­tion is allowed for both reg­u­lar tax and the alter­na­tive min­i­mum tax. The basis of the prop­er­ty and the reg­u­lar depre­ci­a­tion allowances in the year the prop­er­ty is placed in ser­vice (and lat­er years) are adjust­ed accord­ing­ly.

 

Expanded IRC Section 179 expensing limits

Under IRC Sec­tion 179, if you’re a small-busi­ness own­er you can gen­er­al­ly elect to expense the cost of qual­i­fy­ing prop­er­ty, rather than to recov­er such costs through depre­ci­a­tion deduc­tions. The max­i­mum amount that can be expensed for 2014 now remains at $500,000 (the same lim­it that applied in 2013), rather than drop­ping to $25,000 had the leg­is­la­tion not passed. The $500,000 lim­it is reduced by the amount by which the cost of qual­i­fy­ing prop­er­ty placed in ser­vice dur­ing the tax­able year exceeds $2,000,000.

 

Exclusion of gain–qualified small-business stock

Gen­er­al­ly, you’re able to exclude 50% of any cap­i­tal gain from the sale or exchange of qual­i­fied small-busi­ness stock pro­vid­ed that cer­tain require­ments, includ­ing a five-year hold­ing peri­od, are met. How­ev­er, the tem­po­rary increase of the exclu­sion per­cent­age to 100% that applied in 2013 is now extend­ed to qual­i­fied small-busi­ness stock issued and acquired in 2014.

 

Other provisions extended

Oth­er pro­vi­sions extend­ed by the leg­is­la­tion include:

  • The abil­i­ty to exclude from income the dis­charge of debt asso­ci­at­ed with a qual­i­fied prin­ci­pal res­i­dence
  • Pro­vi­sions relat­ed to employ­er-pro­vid­ed mass-tran­sit ben­e­fits
  • Spe­cial rules for qual­i­fied con­ser­va­tion con­tri­bu­tions of cap­i­tal gain real prop­er­ty
  • Pro­vi­sions relat­ing to busi­ness tax cred­its, includ­ing the research cred­it and the work oppor­tu­ni­ty tax cred­it