Many taxpayer friendly tax provisions are set to expire at the end of 2013. Therefore careful consideration should be given to taking advantage of these while they are still available. While we hope these provisions will be extended, it is hard to know what will happen in the current environment in Washington. Some of the main expiring tax breaks are:
1. Bonus Depreciation – Taxpayers can deduct 50% of the cost of qualified new property placed in service in 2013. If you need to buy furniture or equipment for your business, you can get an immediate deduction of 50% in 2013. This provision is set to expire on 12/31/13.
2. Section 179 Expensing is Being Reduced – Currently you can deduct up to $500,000 in Section 179 expense for qualifying property (or up to $250,000 for qualifying leasehold improvements). It is set to be limited to $25,000 starting in 2014. In addition, qualified real property will no longer be allowed as property eligible for a Section 179 expense.
3. Depreciation for Qualified Leaseholds, Restaurant, and Retail Property – Currently, qualified leasehold improvements, restaurant, and retail property are subject to a 15 year life for depreciation purposes, but that will change to 39 years in 2014.
4. State and Local Sales Tax Deduction – If you live in a state with no income tax (or have a small state tax deduction), you’ve been able to benefit by deducting the greater of your state income taxes or state sales tax on your return. This is particularly beneficial for taxpayers who make significant purchases. This provision is going to expire at the end of 2013, so if you are looking at personally making a large purchase, consider purchasing in 2013 for the additional deduction.
5. Qualified Charitable Distributions – Currently, if you are over age 70 ½, you can make tax-free transfers to charity from your IRA. This provision is set to expire at the end of 2013.
6. Change to Deductibility of Conservation Easements – There have been several taxpayer-friendly provisions related to these that increased the deductibility of the easements. Currently an easement is deductible based on a 50% of Adjusted Gross Income limitation and has a 15 year carry forward. Starting in 2014, they will be subject to a 30% of AGI limitation and a 5 year carry forward.
7. Tax Credits – Several tax credits including the Research and Development Credit and Alternative Fuels Credit are set to expire at the end of 2013.
If you have any questions on these expiring provisions and how they might affect you, please contact your Warren Averett advisor.