Thursday, August 30, 2012

Family and Business Tax Cut Certainty Act of 2012

On August 28, the Senate Finance Committee released the legislative text of the Family and Business Tax Cut Certainty Act of 2012, and its committee report. The bill was favorably reported out of committee on August 2 by a vote of 19 to 5.
The bipartisan bill would extend many, but not all, of the tax cut provisions that have expired or will expire at the end of 2012, but there is no expectation of quick Congressional action. It's likely that the extenders issue won't be settled until after the election.
As passed by the Senate Finance Committee, the bill would give numerous expired provisions another lease on life.
Extended business tax breaks. The business tax breaks that would be retroactively reinstated for all of 2012 and extended through 2013 include:
... The Code Sec. 41 research credit.
... The Code Sec. 45D new markets tax credit.
... The Code Sec. 45P credit for employers who make differential wage payments to activated military reservists.
... The Code Sec. 51 work opportunity tax credit.
... The 15-year writeoff under Code Sec. 168(e) for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements.
... More generous dollar limits for expensing under Code Sec. 179 ($500,000 maximum expensing and $2,000,000 phaseout threshold). The bill also would allow up to $250,000 of qualified real property to be treated as eligible for expensing, if placed in service in a tax year beginning in 2012 or 2013. Additionally, for tax years beginning in 2013, certain off-the-shelf software would continue to be expensing eligible.
... The enhanced charitable deduction under Code Sec. 170 for contributions of food inventory.
... The special expensing rules for film and TV productions under Code Sec. 181, and the 7-year recovery period under Code Sec. 168(e)(3)(C)(ii) for motorsports entertainment complexes.
... The Code Sec. 953 and Code Sec. 954 exceptions under Subpart F for active financing income.
... The 100% exclusion under Code Sec. 1202 for gain on the sale of qualified small business stock (extension would apply for such stock acquired before Jan. 1, 2014, and held for more than five years).
... The look-thru treatment of payments between related controlled foreign corporations under the Code Sec. 954(c)(6) foreign personal holding company rules.
... The rule allowing the Code Sec. 199 domestic production activity deduction for businesses in Puerto Rico.
Extended tax breaks for individuals. The bill would put in place a two-year patch (through 2013) for the alternative minimum tax (AMT), i.e., higher exemption amounts, and the ability to use nonrefundable personal credits to offset regular and AMT tax liability.
In addition, the bill would retroactively reinstate for 2012 and extend through 2013 a number of tax breaks for individuals, including:
... Parity for mass transit and parking benefits under Code Sec. 132 through Dec. 31, 2013. Thus, for 2012, the monthly limit on the exclusion for combined transit pass and vanpool benefits would be $240 (rather than current law's $125 per month). For the extension to be effective retroactive to Jan. 1, 2012, expenses incurred prior to enactment by an employee for employer-provided vanpool and transit benefits could be reimbursed by employers on a tax-free basis to the extent they exceed $125 per month and are less than $240 per month, but only to the extent that such amount has not already been excluded from the employee's taxable compensation.
... The above-the-line deduction under Code Sec. 62(a)(2)(D) for elementary and secondary school teachers.
... The ability to treat mortgage insurance premiums as qualified residence interest under Code Sec. 163.
... The election under Code Sec. 164 to deduct state and local sales taxes instead of state and local income taxes.
... The deduction under Code Sec. 222 for qualified tuition and related expenses.
... The option under Code Sec. 408 for taxpayers age 70 1/2 and older to make tax-free distributions from their IRAs for charitable contributions.
The exclusion under Code Sec. 108 for discharged debt on principal residences would be extended for one year (through 2013).
The bill also would extend for two years a number of energy-related provisions, such as the Code Sec. 25C credit for nonbusiness energy property and the Code Sec. 45L credit for new energy-efficient homes.
Tax breaks that wouldn't make the cut. For now, at least, the bill doesn't extend 100% bonus first-year depreciation (but under current law, 50% bonus first-year depreciation remains in place generally for new eligible assets bought before 2013). The bill also doesn't extend the following provisions: the payroll tax break currently in effect; expensing for cleaning up certain hazardous brownfield sites; a number of tax incentives for the District of Columbia and the Gulf Opportunity (GO) Zone; or the more-generous deduction limits for charitable contributions of computer inventory and book inventory.
As of now, there are no offsets for the cost of the bill (the two-year AMT patch alone would cost more than $132 billion). (212) 588-1113

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