November 27, 2013
A Brief Summary of Tax Provisions Expiring 2013
By Mike Bodrato
There are numerous tax provisions that are due to expire at the end of 2013. While Congress has extended many of these provisions in the past, there is no certainty that any of these provisions will be extended come the end of the year. Here is a brief summary of some of the expiring tax provisions which should be considered before the end of the year.
Section 25C: Nonbusiness Energy Property
A 10% credit is currently allowed to individuals who make qualified energy improvements to a principal residence. Such improvements include; installation of new windows, doors, insulation, and roofing. There is a lifetime cap on such improvements of $500 ($200 for the window component). If any such improvements are contemplated consideration should be given to making them before the end of the year.
Section 30D: Credit for Electric Vehicles
The current allowed maximum credit of $7,500 for qualifying plug-in vehicles is set to expire at the end of 2013. Under current law, the car must be propelled by an electric motor that draws electricity from a battery with at least four kilowatt hours of capacity; use an external source of energy to recharge the battery; be used primarily on public streets, roads, and highways; have four wheels; meet certain federal emission and clean air standards based upon the gross vehicle weight rating (GVWR) of the vehicle; and the use must originate with the taxpayer.
Section 45L: New Energy Efficient Home Credit
A maximum $2,000 per-home credit is currently permitted to a contractor who builds a home to be used by the contractor's customer as a residence. In order to qualify for the credit, however, the home must meet certain statutorily-provided energy savings standards.
Section 62(a)(2)(D): Deduction for Certain Expenses of Elementary and Secondary School Teachers
Eligible teachers and educator who work in a school and provide primary and secondary instruction are currently permitted to deduct up to $250 of unreimbursed classroom expenses. This is an above the line deduction and can be taken regardless whether deductions are itemized.
Section 108(a)(1)(E): Discharge of Indebtedness on Principal Residence Excluded from Gross Income
Debt forgiveness is treated as income under the Internal Revenue Code. However, this provision permits a taxpayer to exclude from taxable income up to $2 million of debt forgiven in connection with the foreclosure or short sale of the taxpayer’s principle residence. Taxpayers in circumstances where a foreclosure or short sale is imminent may want to consider speeding up the process if possible to close before the end of the year to take advantage of this tax break in the event it does expire.
Section 132(f): Transit Benefits
In 2013, employees are permitted to exclude from income up to $245 of transit benefits provided by employers. Such benefits include: commuter transportation, transit passes, qualified parking, and qualified bicycle commuting. This provision is due to expire so that the exclusion for public transportation will drop to $130 while the higher benefit for parking will remain in place.
Section 163(h)(3): Mortgage Insurance Premiums
Homeowners who have 20% less equity in their house usually pay an amount for private home insurance (PMI). The premiums paid for PMI were deductible in 2012 and 2013 under Section 163(h)(3) but this provision is due to expire at the end 2013.
Section 164(b)(5): Deduction for State and Local Sales Tax
Since January 1, 2004, individual taxpayers have been permitted to deduct state and local sales taxes in lieu of income taxes as itemized deductions. However, if you live in a state that does not have a state income tax, like Florida or Texas; you cannot take advantage of this deduction.
Section 168(e): 15-Year Straight-Line Depreciation for Qualified Leasehold Improvements, Qualified Restaurant Buildings and Improvements, and Qualified Retail Improvements
Nonresidential residential property and its structural components - which include each of the three types of assets included in the title above - are generally depreciated over 39 years. In recent years, however, qualified leasehold, restaurant, and retail improvements have been depreciated over a much more favorable 15-year period. This period will revert back to 39 years should Section 168(e) not be extended.
Section 168(k): 50% Bonus Depreciation
After 2011, tax incentives under the Internal Revenue Code were provided in the form of 100% first-year depreciation for certain qualifying assets (generally, assets with a life of 20 years or less, the original use of which started with the taxpayer). This was eventually reduced to 50%, where it stands currently. If you are planning a fixed asset additions do so before the end of the year.
Section 179: First-Year Expensing
The 2012 fiscal cliff deal extended the ability for taxpayers to immediately expense up to $500,000 of qualifying assets (non-real property tangible assets acquired via purchase), this benefit phased out once total asset additions exceeded $2,000,000. If this provision is not extended, these limits will fall in 2014 to $25,000 of expensing and a phase-out starting at $200,000. Consideration should be given to accelerate asset acquisitions into 2013 in light of the potential expiration of this provision.
Section 408(d)(8): Tax-Free Distributions from Individual Retirement Plans for Charitable Purposes
Through the end of 2013, a taxpayer aged 70 ½ and older can exclude from income up to $100,000 donated from his IRA to a charitable organization during the year. This provision is due to expire at the end of 2013.