On December 16th, the Senate approved a one-year extension of the set of tax policies known as “tax extenders.” With the House of Representatives having previously adopted this extension, the legislation (H.R. 5771, which contains the “Tax Increase Prevention Act of 2014”) is now headed to the President, who is expected to sign the bill into law.
It is important to note that for most items in the bill, this one-year extension is for 2014 (retroactive). The extenders then sunset again at the end of the year, and will be part of the tax policy debate in 2015.
A number of housing-focused policies are in the bill, including many items supported by NAHB. Homeowners, home builders, developers, remodelers, and other housing stakeholders are advised to review this list and consider which items may benefit their (or their clients’) taxes for the coming filing season.
All of the following items were extended for 2014 and then sunset at the end of the year:
- Section 45L Tax Credit for Energy Efficient New Homes. Provides builders a $2,000 tax credit for exceeding energy standards by 50%. The base energy code is the 2006 International Energy Conservation Code plus supplements. Please remember that builders must have tax basis in the home to claim the credit (i.e. must own and then sell/lease the residence). Section 45L is expected to save home builders $267 million in taxes for 2014 construction activity.
- Fixed Credit Rate for 9% Low Income Housing Tax Credit projects. The bill will renew the 9% LIHTC fixed rate, but only for 2014 allocations.
- Section 25C Tax Credit for Qualified Energy Efficiency Improvements. This is a credit worth up to $500 (subject to a $500 lifetime cap), with lower caps for certain products like windows, for consumers to install qualified energy-efficient upgrades. Remodelers often leverage 25C tax credits when working with clients. Section 25C is expected to save home owners who remodel $832 million in taxes for 2014 improvements.
- Section 179D Energy Efficient Commercial Buildings Deduction. Provides a deduction up to $1.80 per square foot for commercial buildings, including multifamily buildings built under the commercial code, that exceed specific energy efficiency minimums.
- Section 163 Deduction for Mortgage Insurance. Allows taxpayers, subject to an income cap, to deduct premiums paid for private mortgage insurance and FHA/RHA/VA insurance premiums. The deduction for MI is expected to save home owners $919 million for tax year 2014.
- Bonus Depreciation. Extends 50% bonus depreciation.
- Section 179 Small Business Expensing. Increases the maximum expensing amount to $500,000 for qualified property on up to $2 million in property placed in service.
- Mortgage forgiveness tax relief. The provision would eliminate any taxes home owners might face due to renegotiating the terms of a home loan, which might result in forgiving or canceling a portion of the outstanding mortgage. Applies only to principal residences and through the 2014 calendar year.