As 2013 Came to an End, So Did Many Popular Tax Breaks for Individuals and Business

As the world celebrated the beginning of a new year, many here in the U.S. may not have realized that as of midnight, Dec. 31, Congress allowed 55 popular tax breaks, benefiting everyone from teachers and students to small businesses, to expire.

The good news, however, is that most taxpayers will not notice the changes until they file their 2014 tax return in 2015.  Listed below, we have provided information on the most common tax credits and deductions that have expired.

Expired Tax Breaks – Individuals 
Deduction for state and local sales taxes

• In states without an income tax, like Florida and Texas, taxpayers have been able to deduct state and local general sales taxes instead of taking the income tax deduction.  As of Jan. 1, sales tax will no longer be deductible on the Federal return.

Tax free distributions from individual retirement accounts for charitable purposes

• Taxpayers older than age 70½ are required to take minimum distributions from their individual retirement accounts. For 2011-2013, taxpayers were able to make tax-free transfers from an IRA directly to charity. The distribution from the IRA was not taxable as income or taken as a charitable deduction but it counted towards an individual’s required minimum distribution. Now all distributions from retirement accounts will be taxable to the withdrawer. However, the donor will be able to take a charitable contribution deduction for the donation.

Tuition and fees deductions

• The higher education tuition deduction allowed taxpayers to deduct between $2,000 and $4,000 qualified tuition costs.  This particular deduction is coming to an end, but taxpayers may be able to still take advantage of various higher education income tax credits, depending on income level.

Exclusion from income for discharge of debt on principal residence 

• The US Tax Code treats forgiveness of debt as income.  A noteworthy exception for 2007 through 2013 has been available for individuals whose mortgage debt is canceled as a result of a foreclosure, short sale or restructuring.  For 2014, mortgage debt that is canceled by a lender as part of a loan restructuring or foreclosure or short sale will be taxable.

Educators expense deduction

• Eligible educators who worked in a school providing primary or secondary instruction could deduct up to $250 worth of unreimbursed classroom expenses (books, supplies, computer equipment, and other materials for use in their classroom).  This was an above- the-line deduction, which meant teachers could take this deduction whether they itemized other deductions or took the standard deduction. Now any classroom expense in excess of the $250 can still be deducted as an employee business expense, which is a miscellaneous itemized deduction subject to the threshold of 2 percent adjusted gross income.

Energy-efficient home improvement tax credits

• Homeowners who made eligible remodeling changes to their homes that increase their energy efficiency such as new insulation, door and window replacement qualified for a lifetime $500 credit. This expired on Dec. 31.

Mortgage Insurance Premiums

• Private mortgage insurance (PMI) was deductible in 2012 and 2013 but will not be deductible in 2014 and beyond.

Expired Tax Breaks – Businesses
Bonus Depreciation

• For 2012 and 2013, businesses could deduct up to half of the cost of new equipment through a special bonus depreciation deduction, with the rest of the cost depreciated over the useful life of the equipment. This will no longer be available in 2014 and beyond except for long production period property and certain aircraft.

Qualified Leasehold, Restaurant and Retail Improvement Property

• Qualified leasehold improvements, qualified restaurant property, and qualified retail improvements were previously assigned a 15-year (straight-line) recovery period.  In 2014 and beyond, all improvements will need to have a 39-year life.

Tax Credit for Research and Development Expenses

• The research and development (R&D) tax credit enabled businesses to claim a credit for developing or improving manufacturing processes. The improvements needed to be related to new products or experimentation efforts to improve the quality and efficiency of an existing process.

Section 179 depreciation

• Section 179 allowed businesses to expense the entire cost of equipment purchased during the year subject to certain limits. For 2013, the Section 179 deduction and qualifying property limits were $500,000 and $2,000,000. In addition, during 2013, off-the- shelf computer software qualified for Section 179 expensing and taxpayers were able to amend or irrevocably revoke a Section 179 election. In 2014, the deduction and qualifying property limits are $25,000 and $200,000 respectively. Off-the-shelf computer software no longer qualifies for Section 179 treatment.

If you have immediate questions or would like more information, please contact us.