Tax Breaks for Businesses Extended Through 2014

Extended cost recovery provisions

50% bonus depreciation. The Tax Increase Prevention Act of 2014 (TIPA) extended 50% first-year bonus depreciation for an additional year to cover qualifying new (not used) assets that are placed in service in calendar year 2014. For a new passenger auto or light truck that is subject to the luxury auto depreciation limitations, the 50% bonus depreciation provision increases the maximum first-year depreciation deduction by $8,000.

Generous Section 179 rules. For qualifying assets placed in service in the tax year beginning in 2014, TIPA restored the maximum Section 179 deduction to $500,000 (same as for tax years beginning in 2013). The temporary rule that allowed up to $250,000 of Section 179 deductions for qualifying real property placed in service in tax years beginning in 2013 was also retroactively restored for tax years beginning in 2014.

15-year depreciation for leasehold improvements, restaurant property, and retail space improvements. TIPA retroactively restored the 15-year straight-line depreciation privilege for qualified leasehold improvements, qualified restaurant property, and qualified retail space improvements for property placed in service in 2014.

Extended provisions for business

Business credits. TIPA retroactively extended:

Favorable rule for S Corporation donations of appreciated assets. TIPA retroactively restored for tax years beginning in 2014 the favorable shareholder basis rule for stock in S corporations that make charitable donations of appreciated assets. For such donations, each shareholder's tax basis in the S corporation's stock is only reduced by the shareholder's pro rata percentage of the company's tax basis in the donated assets. Without the extended provision, a shareholder's basis reduction would equal the passed-through write-off for the donation (a larger amount). The extended provision is taxpayer-friendly because it leaves shareholders with higher tax basis in their S corporation shares.

Break for S corporation built-in gains. When a C corporation converts to an S corporation, a built-in gains tax generally applies when built-in gain assets (including receivables and inventories) are turned into cash or sold within the recognition period. The tax is only assessed on built-in gains (excess of FMV over basis) that exist on the conversion date. The recognition period is normally the 10-year period that begins on the conversion date. However, for S corporation tax years beginning in 2012 and 2013, the recognition period was five years. TIPA retroactively restored the five-year recognition period for tax years beginning in 2014. In other words, for gains recognized in 2014, the built-in gains tax won't apply if the fifth year of the recognition period has gone by before the start of 2014.

Energy-efficient commercial buildings deduction. TIPA retroactively restored the deduction for the cost of an energy-efficient commercial building property placed in service during the tax year, for property placed in service before 2015. The maximum deduction for any building for any tax year is the excess (if any) of the product of $1.80 and the square footage of the building, over the total amount of the Section 179 deductions claimed for the building for all earlier tax years.

What about 2015?

Unfortunately, none of these special provisions will be available for 2015 unless Congress takes further action. This is entirely possible, but far from certain. We'll keep you posted as the year progresses.

This publication is distributed with the understanding that the author, publisher and distributor are not rendering legal, accounting or other professional advice or opinions on specific facts or matters, and, accordingly, assume no liability whatsoever in connection with its use. The information contained in this newsletter was not intended or written to be used and cannot be used for the purpose of (1) avoiding tax-related penalties prescribed by the Internal Revenue Code or (2) promoting or marketing any tax-related matter addressed herein. © 2015