Tax Law Changes for 2014 That May Affect Your Investment Business

If you’re counting on receiving the investment tax breaks you’ve been accustomed to in recent years, you may want to have a plan B in place. There are a number of tax incentives that are set to expire at the end of this year, and unless Congress acts – which it may or may not do, on any given incentive – they will no longer be available. Here are the five incentives of most concern to the housing industry:

Mortgage insurance premium deductions.

If you have less than 20 percent equity in your property, you likely have private mortgage insurance, which protects the lender’s investment in the event that a buyer defaults. For the past several years, premiums paid on mortgage insurance have been tax deductible. If Congress doesn’t extend the credit, these deductions will disappear, although mortgage interests will still be deductible.

Energy-efficient home remodel

Since 2006, homeowners have been able to take a lifetime credit of up to $500 for using installing energy-efficient windows, appliances and heating and cooling systems. This deduction is set to expire come January; although many people have already taken advantage of it.

Cancellation of indebtedness exclusion on a principal residence

The U.S. considers any forgiven debt to be taxable income, including foreclosures. This incentive allows those homeowners whose property is sold in a foreclosure or short sale during the year to exclude up to $2 million of forgiven debt from their taxable income. The demise of this credit would be unfortunate, as there are still many properties in foreclosure, in spite of the housing upturn.

Section 179 expensing deduction

For the past three years, rather than spread their property expense deductions over several years, small business owners have been able to deduct the cost of their business property all at once, up to $500,000. If this incentive expires, the limit will drop drastically to $25,000.  

Bonus depreciation

For the past six years, businesses have been able to deduct 50 percent of the cost of qualifying business property in a single year. This, too will end on December 31st if it Congress doesn’t extend it.

It’s likely too late in the year to make decisions that will change your tax outcome for 2014. However, since there’s no accounting for what Congress may decide to do, it’s important to keep these potentially expiring deductions in mind when planning for next year’s budget and bottom line.