How Your Tax Bill May Change in 2014

Nearly two dozen tax provisions are set to expire or change in 2014. As always, there’s chatter in Washington about re-instating or modifying some of these provisions, and the election year timing means those discussions may grow louder.  But at the moment, it’s wise to become familiar with the scheduled changes that may affect you or your business this tax season.

Here are the top five tax changes that you should be aware of:

1. Cancellation of Debt (COD) provision for mortgage debt is expiring. In 2013, you could exclude up to $2 million ($1 million if your status is married filing singly) of COD income from qualified principal residence debt that is forgiven due to your financial condition or decline in the value of the home.  This exclusion expired at the end of 2013, with no provision for extension into 2014.
2. Qualified Charitable Distribution exclusion is expiring.  In the 2013 tax year, taxpayers over age 70 ½ could make tax-free transfers directly from their IRAs to charities and count them toward required minimum distributions.  This exclusion expired at the end of 2013, with no provision for extension into 2014.
3. Section 179 deductions and bonus depreciation are changing or expiring.  Using the Section 179 deduction, you can elect to recover all or part of the cost of certain qualifying property, up to a limit, by deducting it in the year you place the property in service.   In 2013, the Section 179 deduction and qualifying property limits were $500,000 and $2,000,000; certain software qualified and so did some qualified real property.  In 2014, the deduction and qualifying property limits are decreased to $25,000 and $200,000 respectively. Software and real property no longer qualify for Section 179 expensing.  In addition, bonus depreciation for qualified property additions will now be limited to long production-period property and certain aircraft.
4. The research credit is expiring.  The current credit for the cost of increasing research activity, IRS Sections 41(f) and (h)(1),  expired at the end of 2013, with no provision for extension into 2014.  Other tax benefits for research remain in effect.
5. Built-in gains provisions for S-Corps changes.   C-corporations electing to be taxed as S-Corps are subject to tax at the highest corporate rate on gains that were built-in at the time of the election and recognized during the recognition period, which was five years in 2013.  For 2014 and future years, the recognition period increases to 10 years. 

If you have questions about how these tax changes could affect your tax planning for 2014, please contact me or another Kaufman Rossin tax specialist.