2004 Tax Highlights
By Celia Johnson, CPA, Tax Partner
The American Jobs Creation Act of 2004 that passed October 11,
2004 included several items that may impact construction industry
businesses. A few of the more significant changes are summarized
below:
Extended Section 179 Expensing:
Businesses can write off up to $102,000 of qualifying assets
purchased during 2004. Congress extended the expanded 179 limits
for an additional two years.
SUV's:
Large SUV's (weighing more than 6,000 pounds) purchased on or
after October 11, 2004 are limited to a cap of $25,000 of Section
179 expense. Excluded from the definition of SUV's are vehicles
designed to have a car seating capacity of more than 9 persons
behind the drivers seat, any vehicle equipped with a cargo area
of at least 6 feet in length, or a vehicle that does not have
seating rearward of the driver's seat. Therefore, most larger
pickup trucks (weighing more than 6,000 pounds) still qualify
for the larger limit of $102,000.
New Deduction Relating to Income Attributable to U.S. Production
Activities:
Congress created a new deduction effective for years beginning
after December 31, 2004 to "Qualified Manufacturers".
The great thing about this new deduction is not just for businesses
that make things such as auto, steel and paper manufacturers.
Many other types of businesses also qualify for the deduction
because Congress chose to define "manufacturer" very
broadly. Businesses qualifying for the new deduction include construction
firms, engineering and architectural firms, computer software,
and agricultural processes. The new deductions 3% of "qualified
production activities income". The deduction applies to all
taxpayers deriving income from "qualified domestic production
activities", regardless of whether they export products.
The deduction is limited to 50% of the wages paid by the taxpayer
during the year. Many issues relating to this new deduction will
have to be clarified under regulations or other IRS guidance.
This will be an interesting tax issue for construction businesses
to watch for 2005.
Principal Residences and Like-Kind Exchanges:
Taxpayers may exclude up to $250,000 ($500,000 if married filing
a joint return) of gain realized on the sale of a principal residence.
The Act amends this law effective October 11, 2004, to provide
that the exclusion for gain does not apply if the principal residence
was acquired in a like-kind exchange in which any gains was not
recognized within the prior five years. This change will prevent
a taxpayer from exchanging property not suitable as a principal
residence (such as undeveloped land or commercial real estate)
for residential property in a like-kind exchange, holding the
property for a sufficient time to meet the 1031 requirement that
replacement property by held for investment, then using the property
as a principal residences for two years, and then selling the
property and excluding the gain. Such a plan now requires the
taxpayer to wait until five years after the like-kind exchange.
This article has explored some of the highlights of the new
law. There's much more, depending on your individual situation.
For more information, call Celia Johnson at the Frisco office
at 970-668-5707.
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