House Passes One Year Renewal of Tax Extenders December 4, 2014 Andrew Lundeen Kyle Pomerleau Andrew Lundeen, Kyle Pomerleau On Wednesday of this week, the U.S. House of Representatives passed a $42 billion package that would extend the nearly 50 tax provisions in the “tax extenders” bill through the end of 2014. The one year extension came following a veto threat from the president that halted talks between Senate Majority Leader Harry Reid (D-NV) and House Ways and Means Chairman Dave Camp (R-MI) on a $400 billion permanent extension of most of the tax provisions. As we have written before, not all tax extenders are good policy. Only a handful of tax extenders should be permanent components of the tax code. The provisions that should be extended on a permanent basis are the extenders that help make the tax code more neutral. These provisions primarily deal with business investment. Four provisions that clearly qualify as neutral tax policy are: Section 179: In past years, Section 179 has allowed businesses to expense up to $500,000 in capital investment rather than depreciating them overtime. This moves the tax code closer to neutral treatment of capital investments. Bonus Depreciation: Bonus Depreciation, or 50 percent expensing, allows businesses to deduct 50 percent of their costs in software and equipment, in the year the purchases are made. This helps mitigate the tax codes bias against capital investment by moving us closer to full expensing. If done so on a permanent basis, it would also provide a boost to the economy. Look-Through Treatment: Look-through treatment allows U.S. companies to move money between their foreign subsidiaries without triggering a U.S. tax liability. This is a necessary band aid for our current worldwide tax system. The complete fix would be a shift to a territorial tax system. Active Financing: Active financing also provides a slight fix for our uncompetitive international tax system. The provision extends deferral to banks and businesses that finance the foreign sale of their products, which grants these businesses the same treatment as other U.S. businesses. Again, a shift to territorial would eliminate the need for this provision. Additionally, arguments could be made for other provisions, such as the research and development tax credit and the state and local sales tax deduction. It’s important that these four provisions become a permanent part of the tax code, though. At the current time, that may not be politically feasible. In this case, the best solution may be a measure that extends all the provisions for 2014 at the least, and, ideally, through the end of 2015 or beyond. This would give Congress the opportunity to map out a permanent solution in 2015, while giving businesses some amount of stability for 2014 and 2015. The full list of the extenders passed by the House for 2014 are in the table, below. Keep in mind that the revenue estimates are for the next decade. List of Extenders Passed in the House on December 3, 2014 Provision 10-year revenue effect of 1 year extension (2015-2024, Millions of Dollars) Individual Extenders Above-the-line deduction for teacher classroom expenses -$214 Discharge of indebtedness on principal residence excluded from gross income of individuals -$3,143 Parity for exclusion from income for employer- provided mass transit and parking benefits -$10 Mortgage insurance premiums treated as qualified residence interest -$919 Deduction for State and local general sales taxes -$3,142 Contributions of capital gain real property made for conservation purposes -$129 Above-the-line deduction for qualified tuition and related expenses -$300 Tax-free distributions from IRAs to certain public charities for individuals age 70-1/2 or older, not to exceed $100,000 per taxpayer per year -$384 Business Extenders Research credit -$7,629 Minimum LIHTC rate for non-Federally subsidized new buildings (9%) $2 Military housing allowance exclusion for determining area median gross income $2 Indian employment tax credit -$62 New markets tax credit -$978 Railroad track maintenance credit -$207 Mine rescue team training credit -$3 Employer wage credit for activated military reservists -$1 Work opportunity tax credit -$1,375 Qualified zone academy bonds -$126 Classification of certain race horses as 3-year property $0 15-year straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements -$2,382 7-year recovery period for motorsports entertainment complexes -$33 Accelerated depreciation for business property on an Indian reservation -$79 Bonus depreciation -$1,492 Enhanced charitable deduction for contributions of food inventory -$143 Increased expensing limitations and treatment of certain real property as section 179 property -$1,434 Election to expense mine safety equipment $0 Special expensing rules for certain film and television productions -$6 Deduction allowable with respect to income attributable to domestic production activities in Puerto Rico -$109 Modification of tax treatment of certain payments under existing arrangements to controlling exempt organizations -$18 Treatment of certain dividends of RICs -$97 Treatment of RICs as "qualified investment entities" under section 897 (FIRPTA) -$44 Exception under subpart F for active financing income -$5,082 Look-through treatment of payments between related CFCs under foreign personal holding company income rules -$1,154 Exclusion of 100 percent of gain on certain small business stock -$881 Basis adjustment to stock of S corporations making charitable contributions of property -$51 Reduction in S corporation recognition period for built-in gains tax -$94 Empowerment zone tax incentives -$251 Temporary increase in limit on cover over of rum excise tax revenues (from $10.50 to $13.25 per proof gallon) to Puerto Rico and the Virgin Islands -$168 American Samoa economic development credit -$14 Energy Tax Extenders Credit for section 25C nonbusiness energy property -$832 Second generation biofuel producer credit -$25 Incentives for biodiesel and renewable diesel -$1,297 Credit for the production of Indian coal -$38 Beginning-of-construction date for renewable power facilities eligible to claim the electricity production credit or investment credit in lieu of the production credit -$6,392 Credit for construction of energy-efficient new homes -$267 Special allowance for second generation biofuel plant property $2 Energy efficient commercial buildings deduction -$127 Special rule for sales or dispositions to implement Federal Energy Regulatory Commission ("FERC") or State electric restructuring policy for qualified electric utilities $0 Excise tax credits relating to certain fuels -$397 Alternative fuel vehicle refueling property -$41 Other Automatic extension of amortization periods -$28 Extension of shortfall funding method and endangered and critical rules $0 Total -$41,599 Note: Details differ from total due to rounding. Source: Joint Committee on Taxation Stay informed on the tax policies impacting you. Subscribe to get insights from our trusted experts delivered straight to your inbox. Subscribe Share Tweet Share Email Topics Center for Federal Tax Policy Business Taxes Individual Income and Payroll Taxes Individual Tax Expenditures, Credits, and Deductions International Taxes Tags Tax Extenders
