Dozens of Tax Extenders Expired at the End of 2013

January 8, 2014

Dozens of temporary tax provisions—known as extenders—expired at the end of 2013 when Congress failed to extend them for another year.

In what has become a familiar event in Washington, Congress has allowed a package of more than 55 tax provisions commonly referred to as “tax extenders” to expire on Dec. 31, 2013. Allowing the tax extenders to expire does not necessarily mean these provisions will disappear forever, as Congress frequently fails to deal with them by their deadline and the expiration of these tax extenders has happened numerous times over the past several years. Typically Congress eventually reenacts them retroactively, which will likely be the case again this year.

For businesses, the tax extenders that expired at the end of last year include increased expensing under Section 179 (full deduction on cost of qualifying equipment), where the limit dropped precipitously, from $500,000 to just $25,000; the 50 percent bonus depreciation; the Work Opportunity Tax Credit; and the credit for research and experimentation expenses.

Additionally, the clock ran out on the subpart F exemption for active financing income and look-through treatment for payments between related controlled foreign corporations; 15-year straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements; and the New Markets Tax Credit.

For individuals, the expired tax provisions include mortgage tax relief, the deduction for state and local sales taxes, education tax deductions, and tax-free distributions from individual retirement accounts for charitable purposes.

Consistent with past behaviors, Congress is currently working to resurrect the expired provisions. Senate Majority Leader Harry Reid (D-Nev.), recently introduced the Tax Extenders Act of 2013 (S. 1859), which would extend through the end of 2014 the overwhelming majority of the expired provisions, which unfortunately means Congress will be right back in this will-they-or-won’t-they mess next December.

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. However, several Finance Committee Democrats believe that certain critical temporary tax provisions should be addressed now. 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.

Extending them all, according to the Congressional Budget Office, would cost more than $938 billion over a 10-year window.