Many practitioners must have breathed a sigh of relief when, with the passage of the Protecting Americans From Tax Hikes (PATH) Act in December 2015 (part of the Consolidated Appropriations Act, 2016, P.L. 113-114), Congress took care of a large part of the problem of expiring tax provisions. A great number of tax items that were set to expire and had been traditionally renewed at the last minute (or retroactively) were extended either permanently or, in some cases, for five years.
However, in the relief over the many extended provisions, which included such important items as the Sec. 41 research credit, the expanded Sec. 179 deduction, and bonus first-year depreciation, practitioners may be surprised to learn that a small but important number of tax provisions are set to expire once again at the end of this year. The expiring provisions include tax incentives for individuals and businesses, as well as several energy provisions.
Congress did not enact extender legislation that would prevent the expiration of these provisions during its recently ended lame-duck session. The extenders were not part of the Further Continuing and Security Assistance Appropriations Act, 2017, P.L. 114-254, which funds the federal government through April 28, 2017.
It is possible Congress will retroactively extend some or all of these provisions when it reconvenes next year, but as it currently stands, the following provisions will expire at the end of 2016.
Individual tax incentives
Provisions for individuals that expire at the end of 2016 include:
- Sec. 108(a)(1)(E), which excludes from gross income discharge of qualified principal residence indebtedness income.
- Sec. 163(h)(3), the 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.
- Sec. 222, which provides an above-the-line deduction for qualified tuition and related expenses.
Also expiring at the end of 2016 is the 7.5% adjusted-gross-income floor for deducting medical expenses, applicable to individuals age 65 and older and their spouses, which will rise to 10% in 2017 (Sec. 213(f)).
Business tax incentives
Provisions for businesses that expire at the end of 2016 include:
- Sec. 45A, the Indian employment tax credit for employers of enrolled members of Indian tribes (or their spouses) who work on and live on or near an Indian reservation.
- Sec. 45G, the railroad track maintenance credit, equal to 50% of the qualified railroad track maintenance expenditures paid or incurred by an eligible taxpayer.
- Sec. 45N, the mine rescue team training credit, which provides a credit for a portion of training costs for qualified mine rescue team employees.
- Sec. 54E qualified zone academy bonds, which allows qualified schools to issue bonds for renovations (but not new construction), equipment purchases, teacher training, or developing course materials when they partner with private businesses.
- Sec. 168(e)(3)(A), which allows certain racehorses to be depreciated as three-year property instead of seven-year property.
- Sec. 168(e)(3)(B)(vi)(I), which provides for five-year cost recovery for certain energy property.
- Secs. 168(i)(15) and (e)(3)(C)(ii), which allow a seven-year recovery period for motorsports entertainment complexes.
- Sec. 168(j), which allows owners accelerated depreciation for qualifying property used predominantly in the active conduct of a trade or business within an Indian reservation.
- Sec. 179E, the election to expense mine safety equipment, which permits taxpayers to elect to treat 50% of the cost of any qualified advanced mine safety equipment as a deduction in the year the property is placed in service.
- Sec. 181, the 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. The provision is modified to also apply to live theatrical productions.
- Sec. 199(d)(8), which permits a deduction for income attributable to domestic production activities in Puerto Rico.
- Sec. 1391 empowerment zone tax incentives. This provision is modified to allow employees to meet the enterprise zone facility bond requirement if they reside in the empowerment zone, an enterprise community, or a qualified low-income community.
- Sec. 7652(f), the temporary increase in the limit on cover over of rum excise taxes from $10.50 to $13.25 per proof gallon to Puerto Rico and the Virgin Islands.
- The American Samoa economic development credit.
Energy tax incentives
Provisions for energy expenses that expire at the end of 2016 include:
- Sec. 25C, which provides a 10% credit for qualified nonbusiness energy property. The law also updates the Energy Star requirements.
- Sec. 25D, the credit for residential energy property for qualified fuel cell property, small wind energy property, and geothermal heat pump property (it will remain available for qualified solar electric property and solar water heating property).
- Sec. 30B, which provides a credit for qualified fuel cell motor vehicles.
- Sec. 30C, which provides a 30% credit for the cost of alternative (non-hydrogen) fuel vehicle refueling property.
- Sec. 30D, the 10% credit for plug-in electric motorcycles and two-wheeled vehicles.
- Sec. 40(b)(6), which provides a credit for each gallon of qualified second-generation biofuel produced.
- Sec. 40A, the credit for biodiesel and renewable diesel, which includes the biodiesel mixture credit, the biodiesel credit, and the small agri-biodiesel producer credit.
- Sec. 45(e)(10)(A)(i), the production credit for Indian coal facilities.
- Sec. 45, the credits for facilities producing energy from certain renewable resources.
- Sec. 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.
- Sec. 48 credits for fiberoptic solar lighting system, geothermal heat pump, small wind energy, and combined heat and power properties and the credit for qualified fuel cell and microturbine plant property.
- Sec. 168(l), which provides a depreciation allowance equal to 50% of the adjusted basis of qualified second-generation biofuel plant property.
- Sec. 179D, the deduction for energy-efficient commercial buildings.
- Sec. 451(i), the special rule for sales or dispositions to implement Federal Energy Regulatory Commission or state electric restructuring policy for qualified electric utilities.
- Secs. 6426(c) and 6427(e), the excise tax credits for alternative fuels.
—Alistair Nevius (email@example.com) is the JofA's editor-in-chief, tax.