Important Tax Law Changes for 2014 (Part I)

With the start of a New Year comes several changes to the tax code and this year is no different. At the stroke of midnight December 31, 2013, 55 tax-breaks expired without any action by Congress to extend them. Some may be extended later in the year retroactively, so stay tuned for that. Until then, we must live by the tax code as it stands today.

In addition to expiring tax deductions and credits, there are some new provisions added to the tax code in 2014 that will have an effect on most Americans. Here is a breakdown of some of the most significant 2014 tax law changes:

Sales Tax Deduction Eliminated: Congress failed to extend the sales tax deduction that has been in effect since 2005. This tax break allowed taxpayers to deduct sales tax paid instead of state and local income taxes on their 1040 schedule A. This break was particularly beneficial to residents of states with no (or relatively low) income tax, such as Florida, Texas, Nevada, and Tennessee. It was also beneficial for those making major purchases such as buying a car, where they would incur a higher sales tax than the income taxes paid.

Energy Efficiency Credits Eliminated: A number of tax credits for energy efficient home improvements are gone as of the end of 2013. These include HVAC systems, water heaters, doors, windows, and insulation. There are still credits available, however, for qualifying solar and wind powered equipment.

Debt Forgiveness Exclusion Removed: From 2007 through 2013, qualified homeowners were exempt from having to pay taxes on debt that may have been forgiven due to a home foreclosure, short sale, or mortgage modification. This provision was there to help homeowners that had been underwater due to the housing crisis that began in 2007. As of 2014, forgiven debt will now be subject to federal income taxes, unless Congress extends this provision retroactively.

Section 179 (Accelerated Depreciation) Deduction Significantly Reduced: Small and mid-sized businesses will no longer be able to benefit from the Section 179 accelerated depreciation benefit. This provision allowed businesses to deduct up to $500,000 for qualifying purchases up front, rather than depreciate these purchases over time. For 2014, this amount has been reduced to $25,000.


Stay tuned for Part II of Important Tax Law Changes for 2014 where we cover some additional changes to the tax code.

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