Tax Changes for 2014 - What Investors Should Know
Taxes have a big effect on whether a real estate investment will be profitable, so it’s important to keep up with tax law changes. Here’s a short summary of a few tax breaks that are expiring and some new tax laws that go into effect in 2014.
EXPIRING TAX BREAKS FOR 2014
As of the date of this newsletter, there are a couple of tax breaks that have expired at the end of 2013. These may never be renewed, they may be retroactively renewed or they may be dealt with as a part of a larger deal on tax reform. The expired tax breaks include:
The deduction on mortgage insurance premiums for certain qualified homeowners;
Fifty percent bonus depreciation which permitted a deduction in a single year of 50% of the cost of qualifying business property;
An annual limit of $500,000 for writing off certain business property in one year (in 2014 the limit is $25,000);
Tax credits for energy efficient improvements to a principal residence, and the ability to deduct the cost of energy efficient improvements to commercial buildings;
The ability to receive mortgage debt relief on a primary residence for debt of up to $2 million without having to include the forgiven debt as a part of the debtor’s taxable income (see our separate article below).
NEW: FINAL REGULATIONS FOR DEDUCTION AND CAPITALIZATION OF EXPENDITURES
The IRS has come up with final regulations to give taxpayers guidance on when they can deduct an expense in a single year and when they have to capitalize the cost over several years. These new rules were a long time in coming and they will help taxpayers determine when an expense is a repair which can be written off right away and when it is an improvement that must be capitalized and deducted over time. Click here for the entire summary.
All of these tax changes are complicated and this is just a brief summary so talk to your tax advisor for additional information or for guidance regarding your specific circumstances.
See IRC Sections 163, 179, 108, 162(a), 263(a), 78 FR 57685.