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Tax Provisions Expiring at the End of 2013

By November 19, 2013

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Several tax breaks are scheduled to expire at the end of the year 2013. Taxpayers may want to consider taking advantage of these tax breaks while they still exist as part of any year-end tax moves. Along the same lines, taxpayers who have been utilizing these tax breaks may want to prepare for the possibility of these tax breaks not being available for the year 2014, and adjust their withholding or estimated tax payments for 2014 accordingly. In order for these tax breaks to be renewed, Congress would need to pass new legislation to extend these tax breaks to future years.

Expiring Tax Provisions for Individuals

Provisions relating to Income

Debts that are forgiven or canceled are generally considered taxable income. A notable exception for the years 2007 through 2013 has been available for individuals whose mortgage debt is canceled as a result of a foreclosure, short sale or mortgage restructuring. In those cases, the mortgage debt forgiveness can qualify to be exempt from the income tax. This special provision expires at the end of 2013. For 2014, mortgage debt that is canceled by a lender as part of a loan restructuring or foreclosure or short sale will be taxable, unless other exception applies.

  • Tax-free distributions from individual retirement plans for charitable purposes

Individuals who are age 70.5 years old or older can distribute funds from an individual retirement account directly to a charity, known as a qualified charitable distribution. Qualified charitable distributions from an IRA are not included in the taxpayer's taxable income, and the taxpayer does not take a deduction for the charitable donation. Up to $100,000 per year may be treated as a tax-free qualified charitable distribution. Further, qualified charitable distributions satisfy the required minimum distribution rules. This special provision expires at the end of 2013.

Investors can sell stock of qualified small businesses and exclude 100% of the gains from being included in income. This 100% exclusion expires at the end of 2013, after which only 50% of gains can be excluded. Small business stock is stock in a small C-corporation where the stock has been held for at least five years.

 

Provisions relating to Employee Benefits

  • Mass Transit Fringe Benefit Reduced

For 2013, the tax-free exclusion for mass transit fringe benefits was set at $245 per month. For 2014, the amount for mass transit benefits eligible for tax-free treatment is $130 per month. This monthly limit applies to reimbursements for commuter highway vehicles and for mass transit passes.

 

Provisions relating to Above-the-Line Deductions

Teachers, principals, and other K-12 educators can deduct up to $250 of their job-related expenses as an above-the-line deduction. This deduction expires at the end of 2013. For 2014, educators will be able to deduct their classroom expenses only as part of the employee business expense itemized deduction.

The above-the-line deduction for college tuition expires at the end of 2013. For 2014, both the Lifetime Learning Credit and the American Opportunity Credit will be available for college students.

 

Provisions relating to Itemized Deductions

Homeowners can deduct the cost of mortgage insurance premiums as part of their deduction for mortgage interest. However, this deduction expires at the end of 2013.

Individuals can deduct state sales tax in lieu of the deduction for state income taxes, and is particularly valuable for taxpayers who live in states with no income taxes.

Individuals who donate a conversation easement to a charitable organization can deduct the value of the easement. The "deduction for qualified conservation contributions (QCCs) is limited to 50% of your adjusted gross income minus your deduction for all other charitable contributions," the IRS explains in Publication 526. This special 50% limitation expires at the end of 2013.

 

Provisions relating to Tax Credits

This tax credit is worth 10% of the purchase price of qualified energy-efficient products installed at the taxpayer's main residence.

This is a tax credit for purchasing 2- and 3-wheeled electric vehicles. According to the IRS, "the credit is equal to $2,500 plus, for a vehicle which draws propulsion energy from a battery with at least 5 kilowatt hours of capacity, $417, plus an additional $417 for each kilowatt hour of battery capacity in excess of 5 kilowatt hours. The total amount of the credit allowed for a vehicle is limited to $7,500."

This tax credit "pays 72.5% of qualified health insurance premiums for eligible individuals and their families," according to the IRS. This credit expires at the end of the year 2013, and the IRS has information about making final HCTC payments.

The Work Opportunity tax credit provides an incentive for businesses to hire specific types of employees, such as veterans and recipients of public assistance. Employers can qualify for a tax credit of up to $4,800 for each new disabled veteran hire.

 

Provisions relating to Depreciation

For 2013, businesses can deduct up to half 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. Bonus depreciation won't be available for the year 2014, except for long production period property and noncommercial aircraft.

Businesses can expense the entire cost of equipment in the year of purchase under Section 179, rather than spreading out the cost over multiple years using regular depreciation. For 2013, businesses can expense up to $500,000 using Section 179. For 2014, however, this limit will be $25,000.

  • Qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements

These types of assets can be depreciated over 15 years if the asset is placed in service during 2013. For 2014, these assets will be depreciated over 39 years.

 

This is not a comprehensive list of all expiring tax provisions. Omitted are tax breaks targeted to specific industries or groups of taxpayers. For a full list of expiring tax provisions, see:

 

Tax Provisions Expiring at End of 2013

Several tax breaks are scheduled to expire at the end of the year 2013. Taxpayers may want to consider taking advantage of these tax breaks while they still exist as part of any year-end tax moves. Along the same lines, taxpayers who have been utilizing these tax breaks may want to prepare for the possibility of these tax breaks not being available for the year 2014, and adjust their withholding or estimated tax payments for 2014 accordingly. In order for these tax breaks to be renewed, Congress would need to pass new legislation to extend these tax breaks to future years.

Expiring Tax Provisions for Individuals

Provisions relating to Income

Exclusion for Cancellation of Debt Income on Home Foreclosures

Debts that are forgiven or canceled are generally considered taxable income. A notable exception for the years 2007 through 2013 has been available for individuals whose mortgage debt is canceled as a result of a foreclosure, short sale or mortgage restructuring. In those cases, the mortgage debt forgiveness can qualify to be exempt from the income tax. This special provision expires at the end of 2013. For 2014, mortgage debt that is canceled by a lender as part of a loan restructuring or foreclosure or short sale will be taxable, unless other exception applies.

http://taxes.about.com/od/income/qt/canceled_debt.htm

Tax-free distributions from individual retirement plans for charitable purposes

Individuals who are age 70.5 years old or older can distribute funds from an individual retirement account directly to a charity, known as a qualified charitable distribution. Qualified charitable distributions from an IRA are not included in the taxpayer's taxable income, and the taxpayer does not take a deduction for the charitable donation. Up to $100,000 per year may be treated as a tax-free qualified charitable distribution. Further, qualified charitable distributions satisfy the required minimum distribution rules. This special provision expires at the end of 2013.

Exclusion for qualified small business stock

Investors can sell stock of qualified small businesses and exclude 100% of the gains from being included in income. This 100% exclusion expires at the end of 2013, after which only 50% of gains can be excluded. Small business stock is stock in a small C-corporation where the stock has been held for at least five years.

http://beginnersinvest.about.com/od/capitalgainstax/ss/capital-gains-tax-rates_5.htm

 

Provisions relating to Employee Benefits

Mass Transit Fringe Benefit Reduced

For 2013, the tax-free exclusion for mass transit fringe benefits was set at $245 per month. For 2014, the amount for mass transit benefits eligible for tax-free treatment is $130 per month. This monthly limit applies to reimbursements for commuter highway vehicles and for mass transit passes.

 

Provisions relating to Above-the-Line Deductions

Classroom Expenses Deduction

Teachers, principals, and other K-12 educators can deduct up to $250 of their job-related expenses as an above-the-line deduction. This deduction expires at the end of 2013. For 2014, educators will be able to deduct their classroom expenses only as part of the employee business expense itemized deduction. < http://taxes.about.com/od/Deductions/a/Unreimbursed-Employee-Business-Expenses.htm>

http://taxes.about.com/od/deductionscredits/p/EducatorExpense.htm

Tuition and Fees Deduction

The above-the-line deduction for college tuition expires at the end of 2013. For 2014, both the Lifetime Learning Credit and the American Opportunity Credit will be available for college students.

http://taxes.about.com/od/deductionscredits/qt/tuitionfeesded.htm

Provisions relating to Itemized Deductions

Deduction for Mortgage Insurance Premiums

Homeowner can deduct the cost of mortgage insurance premiums as part of their deduction for mortgage interest. However, this deduction expires at the end of 2013.

http://taxes.about.com/od/deductionscredits/qt/mortgageinsuran.htm

Deduction for State and Local Sales Tax

Individuals can deduct state sales tax in lieu of the deduction for state income taxes, and is particularly valuable for taxpayers who live in states with no income taxes.

http://taxes.about.com/od/deductionscredits/qt/Sales-Tax-Deduction.htm

Charitable contributions of real property made for conservation purposes

Individuals who donate a conversation easement to a charitable organization can deduct the value of the easement. The "deduction for qualified conservation contributions (QCCs) is limited to 50% of your adjusted gross income minus your deduction for all other charitable contributions," the IRS explains in Publication 526. This special 50% limitation expires at the end of 2013.

http://www.irs.gov/publications/p526/ar02.html#en_US_2012_publink1000295158

Provisions relating to Tax Credits

Credit for nonbusiness energy property

This tax credit is worth 10% of the purchase price of qualified energy-efficient products installed at the taxpayer's main residence.

http://taxes.about.com/od/deductionscredits/qt/energytaxcredit.htm

Credit for two- or three-wheeled plug-in electric vehicles

This is a tax credit for purchasing 2- and 3-wheeled electric vehicles. According to the IRS, "the credit is equal to $2,500 plus, for a vehicle which draws propulsion energy from a battery with at least 5 kilowatt hours of capacity, $417, plus an additional $417 for each kilowatt hour of battery capacity in excess of 5 kilowatt hours. The total amount of the credit allowed for a vehicle is limited to $7,500."

http://www.irs.gov/Businesses/Plug-In-Electric-Vehicle-Credit-%28IRC-30-and-IRC-30D%29

Health Coverage Tax Credit

This tax credit "pays 72.5% of qualified health insurance premiums for eligible individuals and their families," according to the IRS. This credit expires at the end of the year 2013, and the IRS has information about making final HCTC payments. < http://www.irs.gov/Individuals/Expiration-of-the-Health-Coverage-Tax-Credit-%28HCTC%29 >

http://www.irs.gov/Individuals/HCTC:-Latest-News-and-Background

Work Opportunity Tax Credit

The Work Opportunity tax credit provides an incentive for businesses to hire specific types of employees, such as veterans and recipients of public assistance. Employers can qualify for a tax credit of up to $4,800 for each new disabled veteran hire.

http://biztaxlaw.about.com/od/glossaryw/g/workopptaxcred.htm

 

Provisions relating to Depreciation

Bonus Depreciation

For 2013, businesses can deduct up to half 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. Bonus depreciation won't be available for the year 2014, except for long production period property and noncommercial aircraft.

http://biztaxlaw.about.com/od/glossaryb/g/bonusdepreciation.htm

Section 179 Deduction

Businesses can expense the entire cost of equipment in the year of purchase under Section 179, rather than spreading out the cost over multiple years using regular depreciation. For 2013, businesses can expense up to $500,000 using Section 179. For 2014, however, this limit will be $25,000.

http://biztaxlaw.about.com/od/businesstaxes/a/section179.htm

Qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements

These types of assets can be depreciated over 15 years if the asset is placed in service during 2013. For 2014, these assets will be depreciated over 39 years.

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