Tax Analysts provides news, analysis, and commentary on tax-related topics, including the latest developments affecting tax preference items and incentives.

Tax preference items and incentives are reductions of income tax provided by the tax code to encourage specific activities. Tax preference items are excluded from taxable income but would be added back for purposes of calculating alternative minimum tax. Those items could include deductions associated with depletion, intangible drilling costs, tax-exempt interests from private activity bonds, and accelerated depreciation for property placed in service before January 1, 1987.

A tax incentive could be widely defined to include a variety of tax credits, deductions, and exemptions, but a common one is the mortgage interest deduction, which encourages individuals to pursue home ownership. The accelerated cost recovery system (ACRS) under section 168 provides a depreciation deduction for tangible property and a [section 168(k)(4)] election can be made to increase AMTs in the place of taking bonus depreciation.

Both corporation and individuals may benefit from tax incentives, which could involve the research credit under section 41, the section 45 production tax credit, the earned income tax credit under section 31, and the child credit under section 24.

Legislation is often proposed regarding tax preference items and incentives and those bills commonly affect small businesses, members of the military, and college students. Congressional proposals have involved expanding the section 127 exclusion for employer-provided education assistance programs and modifying the benefits of section 529 tuition programs.

Tax Analysts consistently and promptly publishes all relevant developments regarding tax preference items and incentives.