January 7, 2014

For the past several months, CPAs everywhere have been patiently waiting to see if Congress would take action to extend the many tax savings provisions that were set to expire (and actually did) on December 31st. Like you, over the past several years we have gotten used to last-minute and even retroactive extensions of the taxpayer-friendly provisions. However, the end of 2013 was different in that no matter how much research I did, I could not find even a whisper on Congress’s intent to take action on these expiring provisions. Until I decided to take a few days of vacation…

Finally, on December 20th, Senate Bill 1859, known as the Tax Extenders Act of 2013, was introduced to Congress. This Bill proposes the extension of over 50 provisions that expired on December 31st. Here is an outline of a few of the key provisions may affect owners of real property:

Section 179
Section 179 allows businesses to immediately expense 100% of the purchase price of qualifying equipment and software acquired during the year. During 2013, up to $500,000 could be expensed under Section 179. Of course, there were limits in the ability to take this benefit including requirements that the business must be in an income situation. However, Section 179 has been a widely used tax benefit. On January 1st, the amount of Section 179 allowed to be taken reduced from $500,000 to only $25,000!

Bonus Depreciation
During 2013 a taxpayer could elect to immediately expense 50% of the costs of qualified property placed in service during the year. Bonus depreciation is a widely used tax benefit because, unlike Section 179, there are no limits to the amount of assets purchased or income requirements to benefit from the expensing. A taxpayer can be in a loss situation and still elect to take bonus depreciation on their qualified asset additions. Unfortunately, the bonus depreciation provision expired on December 31st.

15-year Depreciation Life for Qualified Leasehold Improvements, Restaurant Buildings and Retail Improvements
Through December 31st, qualified leasehold improvements, restaurant buildings and retail improvements had a reduced depreciable life of 15 years versus their normal life of 39 years. This was a great benefit, which many taxpayers were able to take advantage of. Unfortunately, this benefit expired on December 31st and for 2014 going forward the life of these improvements is back to 39 years.

All three of the benefits outlined above, along with over 50 more, are part of the Tax Extenders Act of 2013, which proposes to extend these provisions through December 31, 2014. If the Act passes, the tax benefits of 2013 would continue on through 2014. There is no word on how long it will take for the Act to works its way through Congress and whether it will actually be passed. Only time will tell.

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This article contains general information only and should not be construed as accounting, business, financial, investment, legal, tax, or other professional advice or services. Before making any decision or taking any action, you should engage a qualified professional advisor.