On Friday, February 9th of 2018, President Donald J. Trump signed into law H.R. 1892 entitled the Bipartisan Budget Act of 2018 (hereinafter “BBA”) just hours after the Senate passed the bill by a vote of 71-28 and the House of Representatives passed the bill by a vote of 240-186. The BBA resolved numerous non-tax law related issues for the federal government on a bipartisan basis including but not limited to raising the debt ceiling; domestic and military spending; community health care; and disaster relief. In addition, the BBA includes tax relief for certain disasters, a retroactive one-year tax extenders package for statutory tax incentives that previously expired on December 31, 2016, including several highly prevalent energy tax incentive programs pursuant to I.R.C. § 179D and I.R.C. § 45L, amongst a highly diverse array of other statutory tax provisions.
Individual and Business-Entity Tax Relief for Certain Disasters
The BBA provides disaster relief tax benefits for individuals and business entities affected by the California wildfires, including but not limited to access to their retirement funds, the temporary suspension of limits on deductions for charitable contributions, and the allowance of deductions for personal casualty disaster losses. The BBA further extends tax relief previously provided for hurricanes Harvey, Irma and Maria to include disaster areas that were declared between the periods of September 21, 2017, through October 17, 2017.
The Tax Impact on Individuals and Business-Entities
The BBA affords an extension for many previously expired statutory tax provisions for individuals and business entities, and the extension and phasedown of many energy tax incentive programs.
The subsequent synopsis will outline just some of the primary statutory tax provisions affecting Individuals that previously expired on December 31, 2016, but was retroactively reinstated, but only through December 31, 2017, including but not limited to:
- I.R.C. § 108(a)(1)(E), which excludes from gross income the discharge of qualified principal residence indebtedness income;
- I.R.C. § 163(h)(3) treatment of mortgage insurance premiums as qualified residence interest, which permits a taxpayer whose income is below certain thresholds to deduct the cost of premiums on mortgage insurance purchased in connection with acquisition indebtedness on the taxpayer’s principal residence; and
- I.R.C. § 222, which provides an above-the-line deduction for qualified tuition and related expenses.
The subsequent synopsis will outline just some of the primary statutory tax provisions affecting Business-Entities that previously expired on December 31, 2016, but was retroactively reinstated, but only through December 31, 2017, including but not limited to:
- I.R.C. § 45G railroad track maintenance credit, equal to 50% of the qualified railroad track maintenance expenditures paid or incurred by an eligible taxpayer;
- I.R.C. § 168(e)(3)(A), which allows certain racehorses to be depreciated as three-year property instead of seven-year property;
- I.R.C. § 168(i)(15), which allows a seven-year recovery period for motorsports entertainment complexes;
- I.R.C. § 181 special expensing rules for certain film and television productions, which allows taxpayers to treat costs of any qualified film or television production as a deductible expense. This provision also applies to live theatrical productions such as Broadway Shows;
- I.R.C. § 199(d)(8), which permits a deduction for income attributable to domestic production activities in Puerto Rico; and
- I.R.C. § 1391 empowerment zone tax incentives.
The subsequent synopsis will outline just some of the primary statutory tax provisions in connection to many of the most popular energy tax incentive programs that previously expired on December 31, 2016, but were retroactively reinstated, but only through December 31, 2017, unless otherwise noted, including but not limited to:
- I.R.C. § 25C, which provides a 10% credit for qualified nonbusiness energy property;
- I.R.C. § 25D credit for residential energy property for qualified fuel cell property, small wind energy property, geothermal heat pump property, qualified solar electric property, and solar water heating property. It should be duly noted that this incentive was extended through 2021;
- I.R.C. § 30B, which provides a credit for qualified fuel cell motor vehicles;
- I.R.C. § 30C, which provides a 30% credit for the cost of alternative (non-hydrogen) fuel vehicle refueling property;
- I.R.C. § 40(b)(6), which provides a credit for each gallon of qualified second-generation biofuel produced;
- I.R.C. § 40A credit for biodiesel and renewable diesel, which includes the biodiesel mixture credit, the biodiesel credit, and the small agri-biodiesel producer credit;
- I.R.C. § 45 credits for facilities producing energy from certain renewable resources;
- I.R.C. § 45L, which provides a credit for each qualified new energy-efficient home constructed by an eligible contractor and acquired by a person from the eligible contractor for use as a residence during the tax year;
- I.R.C. § 48 credits for fiber-optic solar lighting system, geothermal heat pump, small wind energy, and combined heat and power properties and the credit for qualified fuel cell and micro-turbine plant property. It should be duly noted that these credits were extended through 2021, subject to phase-out requirements;
- I.R.C. § 168(l), which provides a depreciation allowance equal to 50% of the adjusted basis of qualified second-generation biofuel plant property; and
- I.R.C. § 179D energy tax deduction for building envelope efficiency in connection to energy efficient lighting systems, energy efficient HVAC systems; and/or an energy efficient building envelope (e.g., windows, doors, roofs, insulation, etc.).
The BBA also includes many tax provisions that were not previously addressed within the historic and far-reaching Tax Cuts and Jobs Act of 2017 (hereinafter “TCJA“) which was previously signed into law by President Donald J. Trump on December 22, 2017. These tax provisions include but are not limited to:
- An exception from the excess business holdings rule for independently operating philanthropic business holdings was provided for private foundations meeting the requirements. It should be recalled that the excess business holdings rule prevents private foundations from owning more than a 20% stake in a for-profit company after the founder’s death. As a background, this new exception was championed by the foundation that owns the Newman’s Own company and will now open new opportunities for charitable planning with family-controlled businesses where the excess business holdings rule has been a major impediment;
- An exemption from the 1.4% excise tax on sizeable college endowments for colleges that don’t charge tuition to students was included. Colleges with sizable endowments are now only subject to the tax if there are at least 500 tuition-paying students and more than 50% of the tuition-paying students are in the U.S.; and
- Several other tax law changes were included, such as relief from improper levy by the IRS on IRA retirement accounts; the clarification of whistleblower awards and related attorney’s fees; and the repeal of the corporate estimated tax shift for corporations with assets in excess of $1 billion.
The funding for the federal government has been successfully extended, the debt ceiling raised, and a bipartisan agreement has been productively reached with respect to many essential and highly diverse budgetary issues. Many of the temporary tax extenders that had previously expired on December 31, 2016, are now extended through December 31, 2017, while a number of additional tax provisions have been introduced into the Code. The U.S. tax regime has undergone a significant paradigm shift over the past few months between both the newly enacted TCJA and the BBA and I fully expect a series of administrative authorities to be issued in the coming months in connection to Treasury Regulations (i.e., either in the form of Proposed Treasury Regulations, Temporary Treasury Regulations, and/or Final Treasury Regulations), Revenue Procedures and Revenue Rulings to provide a proper framework around the scope and application of these far-reaching tax law changes affecting both individual taxpayers and business-entity taxpayers alike.
About the Author
Peter J. Scalise serves as the Federal Tax Credits & Incentives Practice Leader for the Americas at PM Business Advisors, LLC. Peter is a highly distinguished BIG 4 Alumni Tax Practice Leader and has over twenty-five years of progressive CPA Firm experience developing, managing and leading multi-million dollar tax advisory practices on a regional, national, and global level. Peter serves on both the Board of Directors and Board of Editors for The American Society of Tax Professionals (ASTP) and is the Founding President and Chairman of both The Northeastern Region Tax Roundtable and The Washington National Tax Roundtable, operating divisions of ASTP.