Overdue Tax Breaks Expected at Year-End

With the Summer of 2014 closing out, it is finally time for us to start talking about what everyone has been waiting for all year long – Football.

Well, no, but equally exciting we can start talking about the Tax Extenders.   “Tax Extenders” is a package of temporary Federal tax breaks (over 50) that expire and extend every couple years.  These provisions expired at the end of 2013.

Since 2014 is a mid-term election year there has been little political courage to see the extension through to completion.  Both the US House of Representatives and the US Senate have taken up differing versions of the legislation.  The House version attempts to make some key provisions permanent and the Senate version, referred to as the EXPIRE Act, attempts to give all provisions a two year extension.  Both efforts were officially stalled several months ago in favor of waiting for the November election results.

Below are some key provisions that have widespread applicability that we should hope to see extended:

  • Qualified Restaurant Buildings, Retail Improvements and Leasehold Improvements – $4.8 Billion (10 Year Cost) – Restaurant operators have the ability to recover their real estate investment over a 15 year depreciable period rather than the default period of 39 years. Other similar provisions would also benefit a retailer’s improvements to real estate and a lessee making qualifying leasehold improvements.

 

  • Bonus Depreciation – $2.85 Billion (10 Year Cost) – Bonus depreciation allows for a 50% immediate write-off of qualifying property. When coupled with a cost segregation study this provision can be a major incentive for companies to not only purchase new equipment but perhaps expand their facilities.

 

  • Increased Limit to IRC Section 179 Expensing Election – The expensing election for qualifying equipment reverted back to its $25,000 limit on January 1, 2014. Increasing this limit has become part of the Tax Extenders. The extenders version raises the limit to $500,000.

 

  • Research & Experimentation Tax Credit (R&D Tax Credit) – $16 Billion (10 Year Cost) – This has wide-spread applicability to businesses that are willing to invest in the betterment of the science of their product. Qualifying start-ups may benefit from a payroll tax credit.

 

  • Work Opportunity Tax Credit (WOTC) – $3.16 Billion (10 Year Cost) – Employers are incentivized through this tax credit to hire qualifying individuals that are on living assistance, unemployed or disabled veterans or ex-felons.

 

  • Energy Efficient Commercial Building Deduction (179D) – $304 Million (10 Year Cost) – Real estate owners willing to invest in energy efficient systems (lighting, HVAC, etc.) that increase the efficiency by at least 50% can benefit from a deduction of up to $1.80 per square foot. This extended version of the law does increase the efficiency requirements from prior years.

 

  • New Market Tax Credit – $1.8 Billion (10 Year Cost) – This is a major tool in the development of targeted markets that incentivizes private investment through the award of tax credits. When these tax credits are administered through a non-profit development corporation that has a large scale (multi-year) strategic plan of development they can really make an impact on a city and its economy.

This is just a sample of the provisions covered in the Tax Extenders.  Most of these provisions have had support from both sides of the aisle.  So while these provisions become a politically charged topic in an election year, we’re nearly certain to see an extension in some form regardless of the election results.  In the past when we’ve seen expired provisions extended it has been applied retroactively to eliminate the gap.  We’ll be following these developments closely but the variables should be factored into your year-end plan currently.  You may need to add a few if/then statements to your formula….