Government Funding Bill: A Tax Break Revival

February 12, 2018 — Congress passed a two-year budget deal in the early morning hours on Friday, February 9^th.  Buried in this 652-page budget document are extensions of many provisions that expired in 2016. There are a lot of interesting provisions that could prove to be an opportunity for many entities and individuals.

The most notable provisions are as follows:

• The provision under IRC Sec. 179D which allows for the deduction of costs associated with energy-efficient improvements to heating, cooling, lighting, ventilation and hot water systems of commercial buildings is extended through 2017.
• The IRC Sec. 45L credit available to manufacturers of energy-effic­­ient residential homes is extended through 2017.  The contractor may claim a $1,000 or $2,000 credit for homes that meet the qualifying criteria.
• The Sec. 108 exclusion for discharge of debt related to a qualified principal residence in extended through 2017.  Such debt that is discharged subject to a written agreement entered into during 2017 will be excluded from a taxpayer’s gross income.
• Qualified mortgage insurance premiums paid through 2017 are allowed to be deducted as mortgage interest expense.  The deduction phases out at (adjusted gross income) AGI levels of $100,000 - $110,000.
• The deduction from AGI for qualified tuition and related expenses is extended through 2017.  The deduction is capped at $4,000 and is subject to phase-outs based on AGI.
• The provision under IRC Sec. 168 allowing for a 3 year recovery period for race horses is extended for race horses placed in service during 2017.
• Motorsport entertainment complex property placed in service during 2017 is allowed a 7 year recovery period under IRC Sec. 168.
• Domestic gross receipts from Puerto Rico are allowed for the domestic production deduction in 2017.
• Timber gains of C corporations realized during 2017 are subject to a 23.8% tax rate.
• Tax incentives such as tax-exempt bonds, employment credits, increased expensing options and gain exclusion for certain small-business stock are extended through 2017 for businesses operating in an empowerment zone (economically stressed areas).
• The provision allowing a 10% credit for amounts paid for non-business qualified energy improvements (up to $500 credit) is extended through 2017.
• The credit for residential energy-efficient property (solar electric and water equipment, wind energy equipment, geothermal equipment) is extended to include property placed in service after 2016 and before 2022.
• The credit (ranging from $4,000 - $40,000) for purchases of new qualified fuel cell vehicles is extended through 2017.
• A credit of up to 30% of the cost of the installation non-hydrogen alternative fuel vehicle refueling property is allowed for property installed during 2017.
• The provision which allows for a 10% credit (capped at $2,500) of the cost of two-wheeled plug-in electric vehicles is extended through 2017.
• The .50 per gallon excise tax credit relating to alternative fuels is extended through 2017.

Since the above provisions expired at the end of 2016 many taxpayers may not have specifically identified the expenses or applied the proper depreciation methods for the applicable property. Taxpayers should review their records now to be sure they take advantage of the many incentives in 2017. For those taxpayers who already filed their 2017 tax return, you may file an amended tax return to take advantage of these extended incentives.

For more information relating to these provisions please contact Gloria McDonnell at Redpath and Company.