Much of the nation’s attention has been focused on the second COVID-19 stimulus bill approved by Congress at the end of the year. However, the relief bill was combined with an omnibus budget bill that includes a number of tax extenders that provides tremendous benefit to taxpayers. Specifically, 22 temporary tax provisions were scheduled to expire at the end of 2020.
Of particular significance to property owners and investors is that the 179D Commercial Buildings Energy-Efficiency Tax Deduction has been made permanent. The following provides an overview of the changes to tax credits and deductions, beginning with the 179D deduction
Tax Provisions Made Permanent
- 179D Tax Deduction
- Along with a number of other tax incentives due to expire, the 179D energy-efficiency tax deduction has been extended from year to year, sometimes retroactively. No longer—this valuable tax deduction has been made permanent along with updated standards.
- The updated standards align to the most recent American Society of Heating, Refrigerating, and Air Conditioning Engineers (ASHRAE) and Illuminating Engineering Society of North America (IES) standards that are in effect two years before construction of the property begins. Previously, ASHRAE 2009 standards were used. The tax deduction indexes to inflation the amount of the $1.80-per-square-foot limitation.
- Higher Learning Tuition
- Makes permanent the tuition deduction by increasing the phaseout limits in the permanent Lifetime Learning Credit.
- Craft Beverage Excise Tax
- Makes permanent the reduction of certain excise taxes that were included in the Tax Cuts and Jobs Act (TCJA).
- Simplifies record-keeping requirements related to the taxation of beer, wine and distilled spirits.
- Modifies certain requirements for in-bond transfers of bottled distilled spirits.
- Medical Expense Deduction
- Makes permanent the 7.5 percent deduction that was included in the TCJA.
- Short-Line Railroad Maintenance Tax Credit
- Makes the tax credit permanent but at a lower 40% rate.
- Volunteer Firefighter Income
Tax Provisions Extended to 2025
Note: The 2025 date is critical because it aligns with the expiration of the TCJA individual provisions and could help force a new tax package to address important expiring provisions.
- New Markets Tax Credit
- Work Opportunity Tax Credit (WOTC)
- CFC Look-Through
- Family Leave Credit (TCJA provision)
- Employer-Paid Student Loan Income Exclusion (CARES Act provision)
- Oil Spill Liability Trust Fund
- Motorsports Depreciation
- Extends, through 2025, a seven-year recovery period for motorsports entertainment complexes, which is defined as a racing track facility that is permanently situated on land and that hosts one or more racing events within 36 months of the month it is placed in service.
- Empowerment Zones
- Repeals section 179 (obsolete) and capital gains benefits (expired).
- Film and Live Performances Expensing
- Extends, through 2025, a deduction for qualified film, television and theatrical productions of up to $15 million of the aggregate cost ($20 million for certain areas) of a qualifying film, television, or theatrical production in the year the expenditure was incurred.
- Principal Residence Cancellation of Debt (COD)
- Reduces amount from $2 million to $750,000.
Tax Provisions Extended Through 2021
Note: EBITDA and R&D Expensing also expire in 2021.
- Non Business Energy Property
- Extends, through 2021, a credit for purchases of nonbusiness energy property
- Allows a credit of 10% of the amounts paid or incurred by the taxpayer for qualified energy improvements to the building envelope (windows, doors, skylights and roofs) of principal residences.
- Allows credits of fixed-dollar amounts ranging from $50 to $300 for energy-efficient property including furnaces, boilers, biomass stoves, heat pumps, water heaters, central air conditioners and circulating fans, and is subject to a lifetime cap of $500.
- 45L Energy-Efficient Home Tax Credit
- Extends 45L, through 2021, allowing a credit of up to $2,000 for qualified new energy-efficient homes.
- Unlike the section 25C credit for home improvements, the credit for new energy-efficient homes is available to residential rental properties, and it applies per dwelling unit.
- Learn more about the 45L tax credit.
- Racehorse Depreciation
- Sec. 137: classification of certain racehorses as three-year property.
- Assigns a three-year recovery period to racehorses two years old or younger placed in service through 2021.
- Two-Wheel Electric Plug-in Credit
- Fuel Cell Motor Vehicles Credit
- American Samoa Economic Development Tax Credit
- Indian Business Property Depreciation
- Indian Coal Credit
- Indian Employment Credit
- Mine Rescue Training Credit
- Black Lung Trust Fund
- Alternative Fuel Vehicle Refueling Property Credit
- Health Coverage Tax Credit
- Alternative Fuels/Mixture Credit
- Second Generation Biofuels Credit
Provision Extended Through 2022/2023
- Renewable Electricity Credit
- Extends the solar energy tax credit for residential renewable energy property (Section 25D), which includes solar electric, solar water heating, small wind power, fuel cell and geothermal heat pump property.
- Extends the 26% residential solar energy credit for two years, through 2022.
- Provides a 22% credit in 2023.
- The credit would expire at the end of 2023.
Green Energy Provisions
- Extensions of Credits
- Wind: One extra year with 40% cut.
- Solar: Two extra years at the reduced 26% credit amount.
- Section 45Q Carbon Capture: Two extra years (extended through 2025).
- Expansion of Existing Credits
- Offshore Wind through 2025.
- Waste heat to power property added to investment tax credit.
Only one extender, Section 451(k)(3), was allowed to lapse at year-end. This provision applies to a special rule for sales or dispositions by a qualified electric utility to implement Federal Energy Regulatory Commission (FERC) or state electric restructuring policy.
Call on the Specialty Tax Expertise of ETS
The specialists at Engineered Tax Services have substantial expertise in all aspects of tax credits, incentives and cost segregation studies. We draw on the in-house expertise of our tax attorneys, CPAs and engineers to conduct thorough and yet non-invasive analyses to identify all eligible R&D tax credit activities and qualifying expenditures under Sections 179D and 45L. We are experienced in providing Energy Policy Act tax certifications for thousands of companies across many industries. We can help you improve your company’s cash flow by uncovering the greatest possible potential tax savings available.
If you have questions about how you could benefit from tax credits and incentives during these challenging times, please call Engineered Tax Services at (800) 236-6519. To learn more about the latest stimulus package and how your business can access its benefits, call Engineered Tax Services at (800) 236-6519.