Out With the Extenders, In With the New Obamacare Taxes

December 31, 2013

In the world of tax policy, 2013 is ending a lot tamer than last year. Who can forget last year at this time as the country careened Thelma and Louise-style toward the fiscal cliff in which all of the Bush-era tax laws were about to expire at the stroke of midnight. Going over the cliff would have terminated about half the tax code all at once.

This year is more modest, but interesting in its own way. At midnight tonight, 55 tax breaks—known on Capitol Hill as “extenders” because they must be renewed each year—will expire. These 55 tax provisions are a grab bag of both important and frivolous items benefiting individuals and businesses .

While many eyes will be on the extenders, we should not forget that we will welcome in a new wave of Obamacare tax hikes on January 1st.

Here’s a quick review of what’s out and what’s in.

There are a couple of expiring provisions that many individual taxpayers will care about:

  • The tax subsidy for riding mass transit will fall from about $245 a month to $130.  The tax subsidy for parking will remain at $250.
  • The deduction for qualified tuition and related expenses will expire.
  • The ability to donate money from your IRA tax-free will expire. This has been very popular with retirees.
  • The amount that banks write off in mortgage loan forgiveness for people whose houses are under water has been tax exempt, but will once again be counted as income for tax purposes.

Many businesses will care about these expiring items:

  • The tax credit for research and development (R&D).
  • Small businesses will see a reduction in the amount of equipment purchases they can expense (so-called 179 expensing).
  • Big businesses will lose the 50% bonus expensing for capital investments.
  • Multinational businesses will lose two key provisions: “Active financing,” which is the equivalent of deferral for  banks and businesses that finance the foreign sale of their own products (such as tractors); and, “look-through treatment,” which allows companies to move cash between foreign subsidiaries without triggering a U.S. tax liability.    

Some tax breaks most of us won’t miss:

  • Special expensing for film and TV productions.
  • 3-year write off for race horses under two years old.
  • Faster depreciation for motor racing tracks.
  • Lots of tax subsidies for renewable energy programs such as biodiesel, electric motorcycles, and energy-efficient appliances.

The new Obamacare taxes include:

  • The “tax” (or fee) for failing to sign up for Obamacare. In 2014 the tax is $95 or 2.5% of your income over a certain threshold. The tax goes up after 2014. (The tax or penalty on businesses was waved for one year).
  • New tax credits, or the subsidy for people who are eligible for assistance with their insurance premiums.
  • A new tax or “fee” on health insurance companies -- $8 billion worth in 2014. This will get directly passed on to consumers.

Here is a full list of the tax extenders along with their costs for 2013 and 2014, as was estimated by the Joint Committee on Taxation after their extension on January 1, 2013.  JCT has not released any cost estimates for renewing these provisions for 2014 and beyond. 

  Estimated Revenue Cost
(Billions) 
Tax Provisions Expiring on 12/31/2013 2013 2014
     
Individual tax extenders    
Credit for health insurance costs for eligible individuals1 $0.20 $0.20
Extension of deduction for certain expenses of elementary and secondary school teachers. $0.24 $0.16
Extension of exclusion from gross income of discharge of qualified principal residence indebtedness. $0.20 $1.13
Extension of parity for exclusion from income for employer-provided mass transit and parking benefits. $0.19 $0.03
Extension of mortgage insurance premiums treated as qualified residence interest. $0.79 $0.51
Extension of deduction of State and local general sales taxes. $2.86 $2.40
Extension of special rule for contributions of capital gain real property made for conservation purposes. $0.08 $0.05
Extension of above-the-line deduction for qualified tuition and related expenses. $0.94 $0.76
Extension of tax-free distributions from individual retirement plans for charitable purposes. $0.59 $0.28
Total of Individual Provisions $6.10 $5.53
     
Business tax extenders    
Extension of research credit. $6.23 $1.99
Extension of temporary minimum low-income tax credit rate for non-federally subsidized new buildings. * $0.00
Extension of housing allowance exclusion for determining area median gross income for qualified residential rental project exempt facility bonds. $0.00 $0.00
Extension of Indian employment tax credit. $0.07 $0.04
Extension of new markets tax credit. $0.01 $0.03
Extension of railroad track maintenance credit. $0.23 $0.10
Extension of mine rescue team training credit. $0.00 $0.00
Extension of employer wage credit for employees who are active duty members of the uniformed services. $0.00 $0.00
Extension of work opportunity tax credit. $0.95 $0.57
Extension of qualified zone academy bonds. $0.00 $0.01
Extension of classification of certain race horses as 3-year property. * *
Extension of 15-year straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements. $0.28 $0.37
Extension of 7-year recovery period for motorsports entertainment complexes. $0.05 $0.02
Extension of accelerated depreciation for business property on an Indian reservation. $0.31 $0.27
Extension of bonus depreciation. $34.44 $15.84
Extension of enhanced charitable deduction for contributions of food inventory. $0.22 $0.10
Extension of increased expensing limitations and treatment of certain real property as section 179 property. $8.09 $4.04
Extension of election to expense mine safety equipment. $0.03 $0.00
Extension of special expensing rules for certain film and television productions. $0.27 $0.16
Extension of deduction allowable with respect to income attributable to domestic production activities in Puerto Rico. $0.24 $0.12
Extension of modification of tax treatment of certain payments to controlling exempt organizations. $0.04 $0.01
Extension of treatment of certain dividends of regulated investment companies. $0.12 $0.03
Extension of RIC qualified investment entity treatment under FIRPTA. $0.05 $0.01
Extension of subpart F exception for active financing income. $9.40 $1.83
Extension of look-thru treatment of payments between related controlled foreign corporations under foreign personal holding company rules. $1.20 $0.30
Extension of temporary exclusion of 100 percent of gain on certain small business stock. -$0.01 -$0.01
Extension of basis adjustment to stock of S corporations making charitable contributions of property. $0.09 $0.05
Extension of reduction in S-corporation recognition period for built-in gains tax. $0.18 $0.05
Extension of empowerment zone tax incentives. $0.36 $0.04
Extension of temporary increase in limit on cover over of rum excise taxes to Puerto Rico and the Virgin Islands. $0.20 $0.02
Extension of American Samoa economic development credit. $0.04 $0.02
Election to accelerate AMT credit in lieu of bonus depreciation $0.16 $0.14
Total of Business Tax Provisions $63.23 $26.17
     
Energy tax extenders    
Extension of credit for energy-efficient existing homes. $1.46 $0.99
Extension of credit for alternative fuel vehicle refueling property. $0.03 $0.01
Extension of credit for 2- or 3-wheeled plug-in electric vehicles. $0.00 $0.00
Extension of second generation biofuel producer credit. $1.88 $0.30
Extension of incentives for biodiesel and renewable diesel. * *
Extension of production credit for Indian coal facilities placed in service before 2009. $0.00 *
Extension of credits with respect to facilities producing energy from certain renewable resources. $0.12 $0.45
Extension of credit for energy-efficient new homes. $0.07 $0.03
Extension of credits for energy-efficient appliances. $0.16 $0.08
Extension of special allowance for second generation biofuel plant property. $0.00 $0.00
Extension of placed in service date for election to expense certain refineries. * $0.10
Extension of energy efficient commercial buildings deduction.1 $0.10 $0.10
Extension of special rule for sales or dispositions to implement FERC or State electric restructuring policy for qualified electric utilities. $0.60 $0.05
Extension of alternative fuels excise tax credits. $0.31 $0.06
Total of Energy Tax Provisions $4.72 $2.16
     
Total Cost of All Extenders $74.05 $33.86
     

1. JCT Tax Expenditure Estimates, February 2013

*Under $50 million

   

 

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