Taxpayers, IRS await Senate action on 2014's tax extenders

After running into a probable veto wall, the House on Wednesday evening, Dec. 3, decided to just deal with the 2014 tax year.

By a 378-to-46 margin, Representatives approved (as I noted over at Bankrate Taxes Blog) around 55 tax provisions retroactively for the 2014 tax year.

But 2015 and beyond …. Well that's a totally different question.

House members said they felt they had no other option after the White House threatened to veto a wider ranging plan to make some expired tax breaks permanent parts of the Internal Revenue Code.

Keeping the popular individual and business tax breaks off the books would pose too many problems for filers, not to mention the Internal Revenue Service, which must make sure its forms and computer systems are up to date for the fast approaching 2015 filing season.

Senate vote soon: The Senate is not as sanguine. Outgoing Senate Majority Leader Harry Reid (D-Nev.) indicated soon after the House vote that the upper chamber might reject the one-year extenders package. Some of his colleagues also grumbled about the very short-term deal.

But it now seems the Senate is going to follow the House. 

Senate Finance Committee Chairman Ron Wyden (D-Ore.) told reporters on Thursday, Dec. 4, that the Senate wouldn't amend the bill. That means a straight yea-or-nay vote to put most of the expired tax breaks back on the books for the 2014 tax year is likely next week. Obama will sign this deal.

And that timetable, says the IRS chief, should work just fine the tax agency.

"If there are no changes and that passes by the end of next week, we should be able to absorb it," said IRS Commissioner John Koskinen the day after the House vote. That would mean no filing season delay, allowing the IRS could start accepting 2014 returns around the third week of January 2015.

What's back? The House bill, H.R. 5771, was largely crafted along the lines of the Senate Finance Committee's EXPIRE Act. The major difference is that the Senators wanted the tax laws to continue through 2015.

On the business side, the officially named Tax Increase Prevention Act of 2014 includes the research credit, bonus depreciation, and the reduced five-year holding period for S corporation built-in gains.

Individual taxpayers can look forward to claiming on their 2014 returns such items as:

• itemized deduction for state and local sales taxes,
• above-the line deduction for higher education tuition and fees,
• deduction for up to $250 in educator out of pocket expenses (also above-the-line),
• itemized deduction for private mortgage insurance (PMI) premiums, and
• energy-efficient home improvement tax credit.

Taxpayers who lost their homes to foreclosure or short sale also don't have to worry about counting any of those transactions' forgiven debt as income.

Commuters who take public transit will see their tax-free employer-provided benefit for such travel remain relatively close to that allowed folks who drive to work.

And IRA owners age 70½ can roll their required minimum distribution for 2014, due by Dec. 31, directly to a qualified charity.

All of the renewed tax breaks will operate for the 2014 tax year as they did in 2013.

What's still dead? While most of the expired tax break made the 2014 tax year cut, a handful of expired provisions will remain dead. They include:

• Health care tax credit for displaced workers,
• Section 30D plug-in electrical vehicle credit,
• Partial expensing of refinery equipment,
• Section 45M energy-efficient appliance credit, and
• New York Liberty Zone tax-exempt bond financing

If you're looking for some weekend reading, you can check out the Ways and Means Committee summary of H.R. 5771's provisions. Note, however, that a couple of floor amendments were added during consideration Wednesday evening.

Comprehensive follow-up reports on the House extenders deal also are available from Grant Thornton and Deloitte.

Enjoy! And we'll be back next week with the final -- for now! -- word on tax extenders.

You also might find these items of interest:

• Congress fighting over permanent tax extenders
• Tax extenders outlook cloudy in lame duck session