The Senate Finance Committee recently approved extensions contained in the EXPIRE Act of 2014, submitting a favorable verbal vote on April 28.
In all, 55 tax code provisions that expired in 2013 or are due to expire in 2014 have been submitted for extensions of an additional two years, theoretically allowing many business entities to move forward with the assurance that tax credits for which they are qualified will apply for the foreseeable future. Among the reductions potentially being granted new life are those for research and development, wind energy, multinational corporations, teachers, college tuition and bonus depreciation for businesses.
An AccountingWeb report noted that the bill would add some $84.1 billion to the federal budget deficit over the next decade, but the so-called tax extenders provisions offer taxpayers across a range of sectors some clarity during a time considered to be a bridge toward more substantial tax reform.
The most pertinent renewals, as far as the energy sector is concerned, include the following:
- The credit for energy-efficient improvements to existing homes, which was extended two years through 2015.
- The credit for alternative-fuel vehicle-refueling property, including hydrogen property, which was also extended through 2015, at an estimated cost of $89 million over 10 years.
- The modification for plug-in electric motorcycles and highway vehicles, which no longer allows three-wheeled vehicles to qualify.
- The tax credit for cellulosic biofuels producers, extended for two years, allowing facilities producing such biofuels to claim $1.01 per gallon in production tax credit for all materials produced before the end of 2013.
- Incentives for biodiesel and renewable diesel, which allow a $1.00-per-gallon credit for biodiesel.
- The tax credit for Indian country coal production, which stipulates that coal produced on land currently owned by a recognized tribe qualifies for a production credit of $2 per ton.
- The Wind PTC credits, or those for renewable energy production and investment, which allow taxpayers to claim 2.3 cents per kilowatt for wind and renewable electric power derived from a facility at which construction has commenced by the end of 2013.
- Energy-efficient home construction credits, which are afforded to homes achieving a 30 to 50 percent reduction in heating or cooling energy consumption relative to comparable homes built according to the standards of the 2003 International Energy Conservation Code.
- Cellulosic biofuels bonus depreciation, which allows 50 percent of eligible capital costs to be expensed by facilities producing such materials within their first year.
- The energy-efficient commercial buildings deduction, modified and extended two years, allowing taxpayers to deduct up to $1.80 per square foot for any efficiency upgrade of at least 50 percent.
- Incentives for alternative fuel and alternative-fuel mixtures, including liquefied hydrogen, on which $0.50 per gallon may be claimed for the blending and sale of alternative fuel mixtures.
Other extensions that are pivotal for many businesses include:
- The research and experimentation tax credit, extended and now allowing qualified startups to deduct unused credits against their payroll tax liabilities going forward.
- The new markets tax credit, encouraging private business investment within lower-income communities.
- The work opportunity tax credit, allowing businesses to claim up to 40 percent of the first $6,000 in wages paid from hires among one of eight targeted groups.
- The straight-line cost recovery for qualified leasehold improvements, qualified restaurant and qualified retail buildings.
- The bonus depreciation for qualified property purchased and placed in service before Jan. 1, 2016.
- The acceleration of AMT credits, which allow taxpayers to forego bonus depreciation and instead accelerate Alternative Minimum Tax (AMT) credits that were acquired before 2006.
- The temporary extension of the increased maximum amount and phase-out threshold under section 179, which would extend its property definition to include computer software.
- The reduction in S-Corp recognition period for built-in gains taxes, which stipulates that the period of time over which a converted taxable corporation must hold its assets in order to avoid taxes on built-in gains be cut from 10 years to five.
- The extension of empowerment zone tax incentives, which apply to businesses and residents within economically depressed census tracts, otherwise known as Empowerment Zones (EZs).
For all parties to whom these credits pertain, their extensions would provide much-needed predictability, allowing them to more easily navigate financial planning and tax reporting tasks over the next few years. While more comprehensive tax reform is likely still at least a couple of years away, the ability to continually employ these credits offers stability for businesses and individuals alike during this bridge period.