House Approves Temporary Tax Breaks – Now What?

Last week the U.S. House of Representatives approved a bill extending many temporary tax breaks, but only through December 31. Before we totally celebrate the whopping planning opportunities that all of four weeks allow until these “new” extenders expire, the Senate still has to approve these extenders. The Senate is expected to vote on it this week so now tax planning gets a whole three weeks to incent businesses to make large capital purchases to save 2014 taxes.

Some of the business “friendly” provisions in this extenders package include:

1. Extension of research credit for one year (through 2014). [Note: Indiana continues to allow its lucrative research credit. So, the IN credit, even without the federal credit, still is quite lucrative to many Indiana businesses performing such research in Indiana.]
2. Extension of 15-year straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements for one year (through 2014).
3. Extension of 50% bonus depreciation to property acquired and placed in service during 2014.
4. Extension of increased expensing limitations and treatment of certain real property as section 179 property. The bill would extend for one year (through 2014) the small business $500,000 expensing limitation (phase-out amount once 179 purchases exceed $2 million) to property placed in service during 2014. [Note: Absent the extender provision, the amounts would have been (could be) $25,000 and $200,000, respectively.]
   Also, this “179” extender continues (through 2014) to allow expensing for computer software, qualified leasehold improvement property, qualified restaurant property and qualified retail improvement property.
5. Extension of energy efficient commercial buildings deduction (through 2014) which allows similar “179” expensing for energy efficiency improvements to lighting, heating, cooling, ventilation, and hot water systems of commercial buildings. [Note: Hence its Code Section name 179D].

Unfortunately, as I write this blog, these extenders are not a done deal until the Senate approves. And as we have witnessed too many times before, politics can play enormous havoc with certainty.

Even with these extenders likely passing this week, most businesses cannot make large purchases happen quickly, and, thus, are not able to take tax advantage of the extenders in 2014. As a tax planner, I would recommend taking a look at the potentially large difference in tax accumulated depreciation and corresponding book accumulated depreciation. Go through and compute the taxable income difference that you may begin (or continue) to notice when 2014 book depreciation dwarfs 2014 tax depreciation. A real possibility of a larger than expected tax liability is looming as of April 15, 2015.

Tax planners like to have a PLAN. Unfortunately, we will (once again) have no firm answers as to when or whether Congress will again extend these “extenders” into 2015, with most expiring at the stroke of midnight on January 1, 2015. Hopefully they will give us more than three weeks late next year to work with the applicable 2015 tax extender laws. And I believe in Santa Claus, the Easter Bunny and the Chicago Bears!

Written by: Jeff McGowan, CPA, CGMA
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