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:
- The research credit to cover qualifying expenses paid or accrued before 2015,
- The deadline for employing eligible individuals for purposes of claiming the Work
Opportunity Tax Credit to cover qualifying hires that began work in 2014, and
- The credit for eligible small employers that provide differential pay to
employees while they serve in the military to cover payments made in 2014. The
credit equals 20% of differential pay of up to $20,000 paid to each qualifying
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
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