Tax Increase Prevention Act of 2014

Just before the 113rd Congress turned out the lights at the end of 2014 it passed the Tax Increase Prevention Act of 2014. The main purpose of this law was to extend various tax provisions that had expired at the end of 2013. This is a minimal fix, because it extends these provisions only through 2014. That means these provisions were set to expire again less than two weeks after this law was enacted. The law also includes technical corrections to prior tax laws, and provisions making it possible for states to offer programs under which accounts similar to 529 college savings accounts can be created to pay expenses (not limited to education expenses) of certain disabled individuals.

Extenders

For various reasons, Congress sometimes sets an expiration date for tax provisions even when there is no genuine intent for the provisions to expire. Each time the expiration date comes up, Congress passes a law extending those provisions for another year or two. These provisions have come to be known as extenders.

Expiration dates afford Congress an opportunity to review tax provisions to determine whether they should be eliminated, but most of these provisions are renewed more or less automatically, leaving the impression that their temporary nature serves less lofty purposes. Placing an expiration date on a tax benefit permits Congress to attach a smaller budgetary impact to the provision, even though it is widely expected to be renewed indefinitely. Cynics have also suggested that expirations help members of Congress collect political contributions from parties interested in seeing the provisions renewed.

Be that as it may, a few provisions were permitted to expire this time around but the vast majority were extended. The following items are in the category of individual extenders, all of which were reinstated retroactively for 2014 but expire as of January 1, 2015:

• Tax-free distributions from IRAs for charitable purposes
• Deduction of state and local sales tax
• Above-the-line deduction for qualified tuition
• Mortgage insurance premiums treated as interest
• Parity for employer-provided mass transit and parking
• Exclusion of income from discharge of certain mortgage debt
• Contributions of real property for conservation purposes
• Deduction for certain teachers’ expenses

Various business provisions were extended as well, including bonus depreciation, section 179 expensing ($500,000 limit for 2014) and the research tax credit. Among provisions that were not extended are the plug-in electric vehicle credit and the energy-efficient appliance credit.

Technical corrections

Tax legislation often contains mistakes of a purely technical nature: typographical errors, incorrect cross-references and so forth. Fixes to these types of errors are usually noncontroversial, retroactive, and treated as having no budgetary impact (because any such impact was taken into account when the original legislation passed). We noticed only one item of even minor interest in this set of corrections: a fix for a quirky error in the way inflation adjustments are calculated for purposes of AMT.

ABLE accounts

Also included are provisions making it possible for states to offer programs similar to 529 college savings programs but designed instead to cover costs for certain disabled individuals. These programs will not be available until states initiate them, however, so it may be some time before such accounts can be established.

529 account investments

Also tucked into this law is a provision that permits more frequent changes in the investments held in a 529 college savings account.

President Obama signed H.R. 5771 on December 19, 2014, making it P.L. 113-295.