Factbox: Major tax breaks on reform hit list

WASHINGTON (Reuters) - Prospects for a serious debate about tax reform got a lift on Monday as Congress edged toward a deal to raise the debt ceiling.

As part of that pact, a special congressional committee would be set up to find $1.5 trillion in budget savings, some of which could come from overhauling the tax code.

The committee's deadline for a proposal would be November 23, with Congress required to act on it a month later.

Here is a look at tax provisions that could be involved in a reform push, which corporations also hope would produce a cut in the 35-percent income tax rate that they pay.

DEFERRAL OF FOREIGN INCOME - Profits earned by U.S. corporations overseas are not always taxed right away. This deferral of offshore corporate income tax is at the core of many multinational businesses' tax strategies. One result is that more than $1 trillion in U.S. profits are parked overseas. Deferral is high on analysts' lists of reform targets. Drug and technology companies would be big losers if this break ended.

REPATRIATION - Multinationals want to bring home, or repatriate, their overseas profits, but they do not want to pay the full 35-percent corporate income tax rate on them. They are lobbying for a repatriation holiday that would let them pay perhaps only 5.25 percent. The Obama administration may dangle the possibility of a holiday as a carrot to win other concessions, though many tax reformers abhor the holiday idea.

TERRITORIAL SYSTEM - Some multinational corporations favor doing away with overseas deferral and replacing it with a new system that exempts offshore profits from U.S. corporate income tax. Many other nations have such a system. Opponents say it would drive more U.S. jobs and investment offshore.

DOMESTIC MANUFACTURING DEDUCTION - Making things in the United States, instead of abroad, gets companies a tax deduction. It is claimed by manufacturers; software, music and film producers; utilities; and construction firms. Oil and gas companies this year fought off proposals to end their access to it. Other sectors could face similar pressures.

ACCELERATED DEPRECIATION - Companies own assets that wear out -- such as corporate jets -- and as they age, their value is reduced on the books. This is called depreciation. Accelerated depreciation lets companies deduct depreciation costs faster than they normally would. This tax break has been expanded recently, but some economists say that the capital spending stimulus it provided has run its course. Reining in accelerated depreciation is supported by some tax reformers.

MORTGAGE INTEREST DEDUCTION - Interest paid on mortgages is tax deductible. For ordinary Americans, this tax break is often a vital part of the family budget. But mortgages on some vacation homes and luxury yachts are also tax-deductible. Reformers call this unfair and want to put an end to it.

CARRIED INTEREST - Managers of private equity and hedge funds pay the lower capital gains tax rate, instead of the income tax rate, on a good chunk of their income, known in the industry as "carried interest." Tax reformers have long targeted this loophole for repeal.

ENERGY SUBSIDIES. Despite being enormously profitable, many oil and gas companies receive government tax subsidies dealing with items such as drilling costs. The politically powerful industry would likely have to defend its tax breaks once again in any significant tax reform push.

(Reporting by Kevin Drawbaugh, Editing by Howard Goller)