By passing the 2010 Tax Relief Act the outgoing Congress gave a new lease on life to many tax breaks that would have disappeared after either 2009 or 2010. However, it left many tax provisions on the cutting room floor, with only a remote possibility that the incoming Congress will resuscitate them. Here’s a roundup of key provisions that were not extended by the 2010 Tax Relief Act and either expired for good at the end of 2009, or will expire at the end of this year:
Deferral and ratable inclusion for certain debt discharge income. Under Code Sec. 108(i), at the taxpayer’s election, debt discharge income from the reacquisition of a discounted applicable debt instrument by the taxpayer or a related party after 2008 and before 2011 may be deferred for up to five years, and then included in income ratably over five years.
Exclusion for volunteer emergency medical responders. For tax years beginning before 2011, qualified State or local tax benefits (e.g., deduction or rebate of State or local income) and any qualified payment (provided by a State or political subdivision on account of the performance of services as a member of a qualified volunteer emergency response organization) is excluded from the gross income of members of qualified volunteer emergency response organizations. (Code Sec. 139B(a)) These amounts also aren’t subject to social security or unemployment tax, or withholding. (Code Sec. 3121(a)(23), Code Sec. 3306(b)(20), Code Sec. 3401(a)(23))
Qualified motor vehicle taxes. For purchases on or after Feb. 17, 2009 and before Jan. 1, 2010, an itemized deduction was allowed for qualified motor vehicle taxes. (Code Sec. 164(a)(6)) The deduction also was available to those claiming the standard deduction. (Code Sec. 63(c)(1)(E))
Real property tax deduction for nonitemizers. For tax years beginning in 2008 or 2009, taxpayers could take an additional standard deduction amount for state and local real property taxes, up to a maximum of $500 ($1,000 for marrieds filing jointly). (Code Sec. 63(c)(1)(C))
Partial exclusion for unemployment benefits. An up-to-$2,400 exclusion under Code Sec. 85(c) for unemployment compensation benefits applied only for 2009.
Specialized state and local bond provisions. None of these provisions was extended by the 2010 Tax Relief Act:
- Under Code Sec. 54AA, state and local governments, at their option, may issue Build America Bonds (BABs) as taxable governmental bonds with Federal subsidies for a portion of their borrowing costs. These bonds must be issued before Jan. 1, 2011.
- Under Code Sec. 1400U-1 through Code Sec. 1400U-3, two types of “Recovery Zone Bonds” may be issued, including a type of BABs known as “Recovery Zone Economic Development Bonds” and a type of traditional tax-exempt bonds known as “Recovery Zone Facility Bonds.” These bonds also must be issued before Jan. 1, 2011.
- Code Sec. 57(a)(5)(C)(vi) and Code Sec. 56(g)(4)(B)(iv), provide respectively that tax-exempt interest on private activity bonds issued after Dec. 31, 2008, and before Jan. 1, 2011, isn’t an item of tax preference for purposes of the Alternative Minimum Tax (AMT) and isn’t included in the corporate Adjusted Current Earnings (ACE) adjustment.
Specialized catchup contributions. For tax years beginning after Dec. 31, 2009, an individual may no longer deduct catch-up contributions of up to $3,000 each year to his IRA under Code Sec. 219(b)(5)(C) if he participated in a 401(k) plan of an employer (or controlling corporation) that was a debtor in bankruptcy proceedings and an indictment or conviction resulted from transactions related to the bankruptcy.
Alternative motor vehicle credit. These elements of the Code Sec. 30B alternative motor vehicle credit won’t be available for post-2010 purchases: the advance lean burn technology motor vehicle credit, the new qualified hybrid motor vehicle credit, and the new qualified alternative fuel motor vehicle credit. (Code Sec. 30B(k))
Disaster loss related tax rules for individuals. The following provisions were not extended by the 2010 Tax Relief Act:
- The Code Sec. 63(c)(1)(D) additional standard deduction for federally declared disaster losses occurring before Jan. 1, 2010.
- The waiver of the 10%-of-AGI limit, which applied for net disaster losses due to federally declared disasters occurring before Jan. 1, 2010. (Code Sec. 165(h)(3)(A))
- The ability to claim additional personal exemptions for housing Midwestern disaster area displaced persons applied only for 2008 and 2009. (Secs. 702(a)(2) and (e)(1), Division C, of the Emergency Economic Stabilization Act of 2008 (EESA), P.L. 110-343))
Disaster loss related tax rules for businesses. The following business relief provisions applied for federally disasters declared after 2007 and before 2010:
- Expensing of qualified disaster expenses (e.g., abatement of hazardous substances released as a result of a federally declared disaster) under Code Sec. 198A
RIA observation: Note, however, that Sec. 745(a) of the 2010 Tax Relief Act did extend the Code Sec. 198 election to expense qualified environmental remediation expenditures to include expenses paid or incurred before Jan. 1, 2012.
- Five-year carryback of net operating losses attributable to federally declared disasters under Code Sec. 172(b)(1)(J)
- Boosted expensing under Code Sec. 179(e)(1) for qualified disaster assistance property
- Bonus first-year depreciation for qualified disaster assistance property under Code Sec. 168(n)
RIA observation: Although disaster-related expensing and bonus first year depreciation are gone, all taxpayers can avail themselves of generous expensing and bonus depreciation provisions under the Small Business Jobs Act of 2010 (P.L. 111-240) (see RIA’s Complete Analysis of the Small Business Jobs Act of 2010 and RIA’s Complete Analysis of the 2010 Tax Relief Act both available online to Checkpoint subscribers).
Source: Federal Tax Updates on Checkpoint Newsstand tab 12/30/2010