December 2013 - Significant Developments
Expired Tax Provisions
Well, 2013 expired without tax legislation that would extend expiring provisions and without a Farm Bill. As for the expiring tax provisions, here’s a list of some of the more prominent provisions that are currently not allowed for 2014:
- Above-the-line deduction for certain expenses of schoolteachers
- Above-the-line deduction for qualified tuition and related expenses
- The ability to treat mortgage insurance premiums as deductible qualified interest expenses
- The ability to exclude from gross income the discharge of principal residence indebtedness
- The deduction for state and local sales tax
- The credit for certain health insurance costs
- First-year 50 percent bonus depreciation (expense method depreciation is cut to $25,000 with no adjustment for inflation, and the investment threshold is cut to $200,000, and the real property categories are no longer eligible)
- The Work Opportunity Tax Credit
- The reduced built-in-gain recognition period for the BIG tax (it’s now 10 years)
- The ability to elect to accelerate alternative minimum tax credits in lieu of first-year bonus depreciation
- Tax free distributions (up to $100,000 for qualified account holders) from an IRA to a charity
I get asked a lot about the depreciation provisions. Do I think that there actually won’t be first-year bonus deprecation for 2014 and only $25,000 worth of expense method depreciation? No, I don’t think so. But, who knows when the legislation will be passed and enacted that restores the provisions? I think it will occur at some time. But, it will be difficult if not impossible to plan without knowing exactly what the rules will be.
Keep your eye on the economy and your clients’ financial health during 2014. Not only are commodity prices down, but land values appear to have topped-out for many landowners. Plus, a bumper U.S. crop in 2013 could depress commodity prices further and make profit margins in farming even thinner. John Deere has already forecast lower farm equipment sales for 2014.
In addition, the December 2013 jobs report from the Bureau of Labor Statistics is dismal and shows that the economy is not recovering. During December the economy added only 74,000 jobs (that number needs to exceed 250,000 monthly for another three years to return the economy to the level of employment that existed before 2009). Average monthly gains for 2013 were 182,000 – still far below the 250,000 necessary to restore the economy to the pre-2009 level. Also, the labor participation rate was only 62.8 percent, the lowest level since 1978. That explains why the unemployment rate fell to 6.7 percent. It’s not because the economy is getting better, it’s because the labor force continues to shrink. That’s not a good sign going into 2014.
In addition, the health care law and the Dodd Frank regulations will put additional strains on the general economy in 2014. Under Dodd-Frank, effective January 10, 2014, practically all home financing will be subject to the control of the Consumer Financial Protection Bureau. Lenders will now have to make sure that borrowers can repay a mortgage, and consumers will have the legal right to sue their lenders for “miscalculating” the borrower’s fitness to repay a loan. That will most likely tighten credit. Perhaps in anticipation of these forthcoming rules, housing construction jobs declined by 16,000 in December of 2013, and average weekly hours worked also declined. Perhaps some of that is attributable to weather, but the numbers still indicate a softening in the housing market.
The Center for Agricultural Law and Taxation does not provide legal advice. Any information provided on this website is not intended to be a substitute for legal services from a competent professional. The Center's work is supported by fee-based seminars and generous private gifts. Any opinions, findings, conclusions or recommendations expressed in the material contained on this website do not necessarily reflect the views of Iowa State University.