Expired Tax Breaks Could Impact Relocating Employees

January 20, 2014 2:50:00 PM EST | By: Michelle Dopps
by Stefanie Schreck, SCRP, SGMS
Manager, Domestic Consulting Services

describe the imageAs 2013 came to a close, 55 tax breaks affecting everything from taxes on charitable deductions to tax relief for underwater homeowners were allowed to expire. 

The list also includes a batch of energy tax breaks, such as a credit for wind farms that generate electricity or a deduction for commuters who take the bus to work.

Every year there are numerous "temporary" tax breaks, credits and deductions that expire on December 31.  Lawmakers usually plan on extending them, but they don't always get to it on time.  It is possible Congress will renew most of them, but there is no way to know for sure when that might happen, which makes it hard for tax payers to plan for their financial future.
A handful of these expired tax breaks will potentially affect homeowners and transferees, as well as global mobility:

  1. Homeowners who are looking to downsize or sell their homes as “short sales” can no longer exclude primary residence cancellation of debt from gross income. The debt forgiveness on paying income taxes on primary residences expired in 2013. This means that a homeowner walking away from a $350,000 mortgage will pay income tax on the full 1099-C, Cancellation of Debt, issued from the bank. If the cancelled debt is $150,000, a homeowner is looking at a huge tax bill on "income" they never truly received.

  2. Homeowners buying a new home will not be able to deduct new mortgage insurance premiums. Homeowners who have less than 20% equity typically pay for Private Mortgage Insurance (PMI), which was deductible in 2012 and 2013.

  3. Tax payers who are affected by the Affordable Care Act could also feel the pain in 2014. If a tax payer does not have health insurance in 2014 – and doesn’t otherwise meet certain exemptions – he/she will be assessed a tax the IRS calls a “shared responsibility payment,” equal to 1% of taxable income or a flat fee of $95 per uninsured adult and $47.50 per child (up to $285 for a family), whichever amount is higher.  The flat fee will increase to $325 or 2% of income in 2015 and $695 or 2.5% of income in 2016.

  4. In 2013 those who constructed a home that had a level of heating/cooling usage that was 50% lower than the annual level of a comparable dwelling were eligible for a $2,000 tax credit. Likewise, a provision that credits purchasers of energy-efficient appliances has just expired. Finally, a credit for energy-efficient commercial buildings expired in 2013.

  5. Many of the tax breaks for companies were substantial, including billions in credits for companies that invest in research, exemptions for financial institutions that do business overseas, allowing businesses to write off capital investments, and allowing global multinational corporations to move cash between foreign subsidiaries without triggering a U.S. tax liability.  Without the benefit of these tax provisions, global business expansion of multinational corporations will be financially challenged to continue or increase requisite global talent mobility activity.

In theory, Congress could still extend these (retroactively) for 2014. In December Senate Majority Leader Harry Reid pushed for a one-year extension, and he'll likely try again since lawmakers have returned from recess. But there's a hitch: Extending all these breaks would increase the deficit by about $50 billion per year, estimates the Center on Budget and Policy Priorities, unless they're offset with tax hikes or spending cuts elsewhere.

Below is a comprehensive list of all 55 tax credits that expired on December 31, 2013. Some are well-liked; some are highly idiosyncratic; some affect a small number of American tax payers.  But they're all gone for 2014 unless Congress renews them.

Tax Provisions Expired on 12/31/2013
Excerpt from Tax Foundation

Individual tax extenders
  • Credit for health insurance costs for eligible individuals

  • Extension of deduction for certain expenses of elementary and secondary school teachers.

  • Extension of exclusion from gross income of discharge of qualified principal residence indebtedness.

  • Extension of parity for exclusion from income for employer-provided mass transit and parking benefits.

  • Extension of mortgage insurance premiums treated as qualified residence interest.

  • Extension of deduction of State and local general sales taxes.

  • Extension of special rule for contributions of capital gain real property made for conservation purposes.

  • Extension of above-the-line deduction for qualified tuition and related expenses.

  • Extension of tax-free distributions from individual retirement plans for charitable purposes.

  • Business tax extenders

  • Extension of research credit.

  • Extension of temporary minimum low-income tax credit rate for non-federally subsidized new buildings.

  • Extension of housing allowance exclusion for determining area median gross income for qualified residential rental project exempt facility bonds.

  • Extension of Indian employment tax credit.

  • Extension of new markets tax credit.

  • Extension of railroad track maintenance credit.

  • Extension of mine rescue team training credit.

  • Extension of employer wage credit for employees who are active duty members of the uniformed services.

  • Extension of work opportunity tax credit.

  • Extension of qualified zone academy bonds.

  • Extension of classification of certain race horses as 3-year property.

  • Extension of 15-year straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements.

  • Extension of 7-year recovery period for motorsports entertainment complexes.

  • Extension of accelerated depreciation for business property on an Indian reservation.

  • Extension of bonus depreciation.

  • Extension of enhanced charitable deduction for contributions of food inventory.

  • Extension of increased expensing limitations and treatment of certain real property as section 179 property.

  • Extension of election to expense mine safety equipment.

  • Extension of special expensing rules for certain film and television productions.

  • Extension of deduction allowable with respect to income attributable to domestic production activities in Puerto Rico.

  • Extension of modification of tax treatment of certain payments to controlling exempt organizations.

  • Extension of treatment of certain dividends of regulated investment companies.

  • Extension of RIC qualified investment entity treatment under FIRPTA.

  • Extension of subpart F exception for active financing income.

  • Extension of look-thru treatment of payments between related controlled foreign corporations under foreign personal holding company rules.

  • Extension of temporary exclusion of 100 percent of gain on certain small business stock.

  • Extension of basis adjustment to stock of S corporations making charitable contributions of property.

  • Extension of reduction in S-corporation recognition period for built-in gains tax.

  • Extension of empowerment zone tax incentives.

  • Extension of temporary increase in limit on cover over of rum excise taxes to Puerto Rico and the Virgin Islands.

  • Extension of American Samoa economic development credit.

  • Election to accelerate AMT credit in lieu of bonus depreciation

  • Energy tax extenders

  • Extension of credit for energy-efficient existing homes.

  • Extension of credit for alternative fuel vehicle refueling property.

  • Extension of credit for 2- or 3-wheeled plug-in electric vehicles.

  • Extension of second generation biofuel producer credit.

  • Extension of incentives for biodiesel and renewable diesel.

  • Extension of production credit for Indian coal facilities placed in service before 2009.

  • Extension of credits with respect to facilities producing energy from certain renewable resources.

  • Extension of credit for energy-efficient new homes.

  • Extension of credits for energy-efficient appliances.

  • Extension of special allowance for second generation biofuel plant property.

  • Extension of placed in service date for election to expense certain refineries.

  • Extension of energy efficient commercial buildings deduction.

  • Extension of special rule for sales or dispositions to implement FERC or State electric restructuring policy for qualified electric utilities.

  • Extension of alternative fuels excise tax credits.

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Topics: corporate relocation program, relocating employees, lexicon relocation, transferees, tax implications

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