Congress has passed the 2014 tax extenders bill (officially called the Tax Increase Prevention Act of 2014), which extends through 2014 many significant tax breaks for individuals and business that had expired at the end of 2013. This action has been long expected (though long delayed).
Individual Tax Breaks
Most of the provisions in the extenders bill were just for businesses, but there were several expired provisions affecting individual taxpayerss that have been extended through 2014. You may now take advantage of these when you complete your 2014 individual tax return.
This provision allows teachers of grades K-12 to deduct up to $250 of the cost of classroom supplies that they purchase themselves. This is an “above the line” deduction, meaning it’s available whether not teachers itemize their personal deductions.
Individual taxpayers who take mass transit to work may be paid up $250 per month tax-free by their employers to defray the cost, the same as those who drive to work and pay for parking.
State and Local Sales Tax
The personal itemized deduction for state and local sales taxes has been extended through 2014. This permits itemizers to deduct state and local taxes instead of state income taxes.
Up to $4,000 in tuition, fees, and other expenses for college, graduate school, vocational school, or other post-secondary education may be deducted in 2014, whether or not you itemize. You may take this deduction for eligible expenses you pay for yourself, your spouse, or your dependents.
Private Mortgage Insurance
If you have to pay for private mortgage insurance to obtain a home loan, you may deduct the premiums for 2014 if you itemize your deductions.
Forgiven Mortgage Debt
Homeowners who sell their homes for a loss or lose them through foreclosure need not pay income tax on the amount of any mortgage debt forgiven by their lenders during 2014.
Tax-Free IRA Withdrawals for Charity
This popular tax break allows anyone over 70-1/2 to make tax-free withdrawals of up to $100,000 from a traditional IRA provided that the money is distributed directly to an eligible charity.
Residential Energy Efficient Property Credit
You may claim a credit of 10% of the cost of certain energy saving property that you added to your main home during 2014. This includes the cost of installing qualified insulation, windows, exterior doors, and roofs. You can claim no more than $200 in total credits for windows, $50 for a main air circulating fan, $150 for hot water boiler, or $300 for any other energy-efficient property. There is a $500 lifetime limit on this credit.
Business Tax Breaks
The following and the most significant tax breaks for businesses have also been extended through 2014:
50% Bonus Depreciation
This provision allows businesses to depreciate in one year 50% of the cost of new tangible personal property (and software) placed in service by December 31, 2014. The remaining cost may be depreciated over several years under the normal depreciation rules. Bonus depreciation will end on January 1, 2015 unless extended again by Congress.
$500,000 Section 179 Expensing Limit
Tax Code Section 179 allows businesses to deduct in one year the cost of new or used tangible personal business property up to an annual limit. The Section 179 limit is $500,000 for 2014 with a $2 million investment limit. The limit will automatically go down to $25,000 in 2015 unless Congress increases it again.
First-Year Depreciation of Autos and Trucks Increased by $8,000
For automobiles and trucks first placed into serviced in 2014, if 50% bonus depreciation is claimed, the annual limit on first year depreciation is increased by $8,000–from $3,160 and $3,460, respectively, to $11,160 or $11,460.
Energy Efficiency Deductions for Commercial Buildings
This deduction allows businesses to write off up to $1.80 per square foot for energy efficient improvements made to commercial buildings and government buildings during 2014.
Energy Efficiency Credits for Builders of Energy Efficient Homes
A provision allowing eligible contractors to claim a $2,000 tax credit for the sale or lease of new energy efficient homes is extended through 2014.
Improvements to Qualified Real Property
Up to $250,000 in improvements made to qualified leasehold improvement property, restaurant property, and retail improvement property placed in service in 2014 can be deducted in 2014 under Section 179, with the remaining cost deducted over 15 years. Such improvements are also eligible for 50% bonus depreciation in 2014.
Work Opportunity Tax Credit
Employers that hire members of target groups during 2014 may qualify for a tax credit of up to $6,000 (more for hiring certain veterans). Targeted groups include veterans, welfare and food stamp recipients, low-income ex-felons, disabled people, and high-risk young people.