Business Tax Extenders Set to Expire SoonDecember 18, 2013
Under current law, dozens of temporary tax provisions—known as extenders—are scheduled to expire at the end of 2013. On Jan. 1, approximately 55 popular tax incentives that help businesses and individuals with capital investment and growth will sunset—since Congressional action is implausible. Extending them all, according to the Congressional Budget Office, would cost more than $938 billion over a 10-year window.
The American Taxpayer Relief Act (ATRA), signed into law on Jan. 2, 2013, reduced tax policy and preparation uncertainty by permanently extending most of the tax cuts first enacted in 2001 and 2003 and permanently indexing the alternative minimum tax (AMT) for inflation. However, under ATRA, a number of provisions that had been allowed to expire at the end of 2011 and 2012 were temporarily extended through 2013. These are the tax provisions scheduled to expire at the end of this year.
Since the House has already adjourned for the year, and the House-Senate budget compromise deal–which is being voted on in the Senate this week–did not provide instructions for addressing expiring tax provisions as part of their negotiations, these tax extenders will indeed lapse, at least temporarily.
Several of the key business extenders expiring on Dec. 31, include:
- Section. 179 expensing limitation: ATRA extended retroactively from Jan. 1, 2012, through tax years beginning before Jan. 1, 2014, the limitation amounts under Sec. 179 for expensing of certain depreciable property. The act extended the rules for the maximum expensing amount and phase-out threshold under Sec. 179 that were in effect for tax years beginning in 2010 and 2011 to apply also for tax years beginning in 2012 and 2013. The amount a taxpayer may expense under Sec. 179 increased to $500,000, and the phase-out threshold amount increased to $2 million, for tax years beginning in 2012 and 2013. For tax years beginning after Dec. 31, 2013, the expense cap and phase-out threshold amounts are scheduled to return to $25,000 and $200,000, respectively.
- The credit for research and experimentation expenses: ATRA extended retroactively from Jan. 1, 2012, through the end of 2013 the credit for increasing research and experimentation (R&E) activities, which had lapsed at the end of 2011. The credit for R&E expenses will again expire for amounts paid or incurred after Dec. 31, 2013.
- The 50 percent bonus depreciation: ATRA extended through 2013 the 50 percent bonus depreciation provision. Bonus depreciation allows for an additional first-year depreciation deduction of 50 percent of the basis of certain qualified property acquired after Dec. 31, 2007, and placed in service prior to Jan. 1, 2014. This provision expires for property acquired after Dec. 31, 2013.
- The 15-year straight-line cost recovery for qualified leasehold, restaurant, and retail improvements: ATRA extended retroactively from Jan. 1, 2012, through the end of 2013 the rule treating qualified leasehold improvement and certain other property as 15-year property. The act extended the exception allowing 15-year straight-line cost recovery for certain qualified leasehold improvement property, qualified restaurant buildings and improvements, and qualified retail improvement property in the 15-year modified accelerated cost recovery system (MACRS) class placed into service prior to Jan. 1, 2012, to include qualifying improvements placed into service before Jan. 1, 2014.
- Small Business Stock: ATRA extended the 100 percent exclusion allowed for gain on the sale or exchange of qualified small-business stock. The stock must be acquired before Jan. 1, 2014, and held for more than five years by non-corporate taxpayers. After 2013, the exclusion reverts to a 50 percent exclusion.
According to House Ways and Means Committee Chairman Dave Camp (R-Mich.), he intends to look at all the extenders during the upcoming 2014 tax reform debate. Additionally, Senate Finance Committee Chair Max Baucus (D-Mont.) and Ranking member Orrin Hatch (R-Utah) have both stated that extenders should be addressed as part of comprehensive tax reform. If a comprehensive tax overhaul moves next year, some of the expiring provisions could be reworked permanently as part of it, while others would be allowed to die.
The Obama Administration’s FY2014 budget also suggested that expiring tax provisions could be addressed as part of tax reform, noting that “the President’s proposal for revenue neutral reform would prevent hundreds of billions of dollars from being added to the deficit if the Congress continues to extend temporary business tax incentives without paying for them.”
Allowing temporary tax provisions to expire at the end of 2013 does not necessarily mean that these tax provisions will not be available to taxpayers in 2013. In recent years, Congress has chosen to retroactively extend expired tax provisions.