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Tax Breaks Retroactively Reinstated and Extended by the 2012 Taxpayer Relief Act

January 29, 2013

Michael P. Jodon, CPA
Partner

As part of the much discussed ‘Fiscal Cliff’ legislation which addresses many of the expiring Bush-era tax cuts, provisions of the American Taxpayer Relief Act of 2012 retroactively reinstated various business and individual tax breaks which expired at the end of 2011. While legislation was designed and passed in 2013, taxpayers, as in years before 2012, once again have the opportunity to benefit from the following items retroactively to 2012:

Business Tax Breaks Retroactively Reinstated and Extended by the 2012 Taxpayer Relief Act

Expensing

  • Code section 179 business asset expensing to a maximum of $500,000 with a $2 million investment limit.
  • 15-year straight-line cost recovery for qualifying leasehold improvements, restaurant buildings and improvements, and retail improvements as well as $250,000 code section 179 expensing for qualified real property.
  • Enhanced charitable deductions for contributions of wholesome food inventory by C Corporations and other entities with similar pre-2012 limitations.
  • The special expensing rules for taxpayers to elect to deduct certain aggregate costs of any qualifying film or television productions in the year the expenditure was incurred instead of capitalizing and depreciating the expenditures.

S Corporations

  • For the net built-in gains tax in 2012 and 2013, the recognition period is the five-year period beginning with the first day the corporation was an S Corporation.
  • The rule that S Corporation shareholders lower their stock basis by the corporation’s adjusted basis in contributed property instead of the property's fair market value.

Tax Credits

  • Code section 41 tax credit for taxpayers that engage in qualified research and experimentation activities.
  • The new markets tax credit for qualified equity investments to acquire stock in a community development entity.
  • The work opportunity tax credit for eligible non-veterans and for qualifying veterans.

Foreign

  • The exclusion of certain income from the active conduct of banking, financing and similar business or from the conduct of an insurance business for U.S. shareholders of foreign corporations from Subpart F income.
  • The look-through rule for payments between related controlled foreign corporations under foreign personal holding company income rules.
  • The inclusion of a regulated investment company within the definition of a qualified investment entity with respect to code section 1445 withholding rules on gains from the disposition of U.S. real property interests by a foreign person.

Miscellaneous

  • The designation of an empowerment zone which extends various asset expensing, wage credit, bond financing and capital gains of certain qualified assets.
  • The exclusion from Unrelated Business Taxable Income for payments of interest, rent, royalties and annuities paid to a tax-exempt organization from a controlled entity.
  • The national bond volume limitation for Qualified Zone Academy Bond interest is extended at pre-2012 levels.
  • The exemption from gross basis and withholding tax for interest-related dividends and short-term capital gain dividends received from a regulated investment company.

Individual Tax Breaks Retroactively Reinstated and Extended by the 2012 Taxpayer Relief Act

  • The $250 above-the-line deduction for certain expenses of elementary and secondary school teachers.
  • The excludible employer-provided mass transit and parking benefits is increased and extended.
  • Premiums for mortgage insurance in connection with the acquisition indebtedness on the taxpayer’s qualified residence will continue to be deductible as qualified residence interest subject to phase-out based on a taxpayer’s adjusted gross income.
  • The state and local general sales tax deduction for taxpayers who itemize and elect to deduct these taxes instead of state and local income taxes.
  • The act extends the 50% and 100% liberalized rules for qualified conversation contributions for taxpayers and qualified farmers and ranchers.
  • The $4,000 above-the-line deduction for qualified tuition and related expenses subject to applicable adjusted gross income limitations.
  • Tax-free distributions, by individuals age 70 ½ and older, from an Individual Retirement Account transferred to eligible charities.
  • The ability to deduct personal tax credits against a taxpayer's alternative minimum tax as well as their regular tax.
  • The tax credit for energy efficient improvements to a taxpayer’s principal residence is extended with similar limitations to pre-2012 law.

As noted above, many provisions have been retroactively reinstated and extended. However, unlike most of the permanent changes in the American Taxpayer Relief Act of 2012, many of these provisions only have a two-year life. Furthermore, as with most tax laws, a study of a particular provision and its application to a taxpayer is needed to ensure benefit. 

Please contact Michael P. Jodon for questions regarding the above provisions or other items from the American tax Relief Act of 2012 at mjodon@blumshapiro.com.

Disclaimer: Under U.S. Treasury Department guidelines, we hereby inform you that (1) any tax advice contained in this communication is not intended or written to be used, and cannot be used by you, for the purpose of avoiding penalties that may be imposed on you by the Internal Revenue Service (or state and local or other tax authorities), and (2) no part of any tax advice contained in this communication is intended to be used, and cannot be used, by any party to promote, market or recommend any transaction or tax-related matter(s) addressed herein without the express and written consent of Blum, Shapiro & Company, P.C.

 

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