Tax Extenders Update - Bipartisan Budget Act of 2018

By Kathleen Donaghy and Ann Donie

If you were busy with year-end, you may have missed some expired tax incentives and credits that were extended in the Bipartisan Budget Act of 2018 signed into law by the President on February 9, 2018.  Typically, these tax breaks are extended yearly for one or two years at a time, usually right at year end.  This year they were later than usual and rolled into the bipartisan budget act in February.

All of these provisions are retroactive, and many expire December 31, 2017.  An analysis should be performed for assets placed in service in 2017 tax years to see if any additional expensing or credits can be taken.

First let’s go over the depreciation related tax incentives credits and provisions that have been extended through December 31, 2017 or 2017 tax years:

  • Empowerment Zones – The ability to designate an area as an Empowerment Zone has been extended through 2017 tax years. This allows for an additional $35,000 in Section 179 to be taken on qualified zone property placed in service in 2017 tax years.  Combined with the regular Section 179 of $510,000 allowed in 2017 tax years, this adds up to a maximum of $545,000 direct expense allowed for Section 179 expensing for an enterprise zone business. Sections 1397A & 179
  • Section 179 D – The deduction for Energy Commercial Efficient Buildings has been extended through December 31, 2017. This credit is limited to the lessor of (1) the cost of the energy efficient commercial building qualifying property placed in service during the tax year or (2) the product of $1.80 and the square footage reduced by deductions claimed with respect to the building in prior tax years. The deduction is taken on the “Other Deductions” line of the tax return. The depreciable basis of the property generating the deduction must be reduced by the amount deducted. Section 179D(h)
  • Section 179 E – The election to expense advanced mine safety equipment has been extended through December 31, 2017. This is a 50% deduction of the cost of qualified advanced mine safety equipment in the tax year that the equipment is placed in service.  Advanced mine safety equipment includes any of the following:  emergency communication technology, electronic identification and location devices, emergency oxygen-generating, self-rescue devices, pre-positioned supplies of oxygen and comprehensive atmospheric monitoring systems. The depreciable basis of the qualified property must be reduced by the amount deducted under this section. Section 179E(g)
  • Qualified Indian Reservation Property – Accelerated recovery lives that result in faster write-offs are available through December 31, 2017. Section 168(j)(9)
  • Biofuel Plant Property– The 50% special allowance is extended for second generation biofuel plant property through December 31, 2017. Second generation biofuel is any liquid that is derived by, or from, qualified feedstock such as lignocellulosic or hemicellulosic matter that is available on a renewable or recurring basis and any cultivated algae, cyanobacteria, or lemna.  The biofuel must meet the registration requirements for fuels and additives established by the Environmental Protection Agency. Section 168(l)
  • Race Horses – the 3-year recovery period for certain race horses has been extended through December 31, 2017. A race horse is generally placed in service when its training begins.  This is usually the end of its yearling year, which is typically less than two years after birth. Section 168(e)(3)(A)(i)
  • Motorsports Entertainment Complexes – the 7-year recovery period has been extended through December 31, 2017. A motorsports entertainment complex is defined as a racing track facility situated permanently on land and which hosts one or more racing events for automobiles, trucks or motorcycles during the 36-month period following the first day of the month in which the facility is placed in service.  The events must be open to the public for the price of admission.  Section 168(e)(3)(C)(ii)

Next, the following credits were extended one year through 12/31/2017 for qualified vehicles and refueling property that fall under the Alternative Motor Fuel Credit and the General Business Credit.  If the qualifying property is business property, the basis of the qualifying property must be reduced by the amount of the credit:

  • Qualified Fuel Cell Motor Vehicles – the credit has two components; the basic amount depends on vehicle weight and an additional credit is available based on fuel economy as compared to the city fuel economy for the 2002 model year. A qualified fuel cell motor vehicle is a motor vehicle made by a manufacturer that is propelled by power derived from one or more cells that convert chemical energy directly into electricity by combining oxygen with hydrogen fuel that is stored on board the vehicle and may or may not requires reformation before use.  Additional requirements for the credit must be met.  Section 30B(k)(1)
  • Qualified Alternative Fuel Vehicle Refueling Property– the credit is equal to 30% of the cost of all qualified alternative fuel vehicle refueling property placed in service during the tax year. The credit shall not exceed $30,000 in the case of depreciable property or $1,000 in any other case. Qualified alternative fuel vehicle refueling property is property used to store or dispense a cleaning-burning fuel or to recharge an electric vehicle.  Certain restrictions exist such as the fuel and recharging properties must be located where the fuel is delivered, or where the vehicle is recharged.  Additional requirements for the credit must be met. Section 30C(g)
  • Qualified Two-wheeled Plug-in Electric Vehicle (i.e. electric motorcycle) – the credit is equal to the lesser of 10% of the cost of the vehicle or $2,500. A qualified two-wheeled vehicle is a vehicle made by a manufacturer that is propelled in a significant extent by an electric motor that draws electricity from a battery with a capacity of not less than 2.5 kilowatt hours and is capable of being recharged from an external source and is capable of achieving a speed of 45 miles per hour or greater.  Additional requirements for the credit must be met.  Section 30D(g)(3)(E)(ii)

The following Energy Credits were extended through December 31, 2021.  For each of these credits, the depreciable basis of the property generating the credit must be reduced by 50% of the credit.

  • Solar Energy – 30% credit which includes equipment and materials (and parts related to the functioning of such equipment) that uses solar energy to illuminate the inside of a structure using fiber-optic distributed sunlight. The rate gets phased out based on the year that construction begins.  Construction of property must begin before January 1, 2022 to be eligible for the credit.  If construction of property begins before January 1, 2022 and is placed into service after December 31, 2023, the credit will be 10%. Section 48(a)(3)(A)
  • Thermal Energy Property – 10% credit which includes equipment used to produce, distribute, or use energy derived from a geothermal deposit but only in the case of electricity generated by geothermal power up to (but not including) the electrical transmission stage. Construction of property must begin before January 1, 2022 to be eligible for the credit. Section 48(a)(3)(A)
  • Fuel Cell Property – 30% credit which is limited to $1,500 for each 0.5 kilowatt of capacity for such property. The rate gradually gets phased out based on the year that construction begins.  Construction of property must begin before January 1, 2022 to be eligible for the credit.  If construction of property begins before January 1, 2022 and is placed into service after December 31, 2023, the credit will be 10%.  Fuel cell property is defined as a fuel cell power that generates at least 0.5 kilowatt of electricity using an electrochemical process and has an electricity-only generation efficiency greater than 30%. Section 48(c)(1)(D)
  • Small Wind Property – 30% credit for property that uses a small wind turbine (one with a nameplate capacity of not more than 100 kilowatts) to generate electricity. The rate gradually gets phased out based on the year that construction begins.  Construction of property must begin before January 1, 2022 in to be eligible for the credit.  If construction of property begins before January 1, 2022 and is placed into service after December 31, 2023, the credit will be 10%. Section 48(c)(4)(C)
  • Microturbine Property – 10% credit which shall not exceed an amount equal to $200 for each kilowatt of capacity for such property. Microturbine property is defined as a stationary microturbine power plant which has nameplate capacity of less than 2,000 kilowatts and has an electricity-only generation efficiency of not less than 26 percent at International Standard Organization conditions.  Construction of property must begin before January 1, 2022 to be eligible for the credit. Section 48 (c)(2)(D)
  • Combine Heat and Power System – 10% credit for property that generates electricity and useful thermal energy in a single integrated system. Construction of property must begin before January 1, 2022 to be eligible for the credit.  Section 48 (c)(3)(A)(iv)

 Finally, here is a list of other extended tax incentives credits and provisions:

  • Indian employment credit
  • Production credit for Indian coal facilities
  • Railroad track maintenance credit
  • Mine rescue team training credit
  • Special expensing rules for film, television and live theater productions
  • Residential energy property credit
  • Second generation biofuel producer credit
  • Biodiesel and renewable diesel incentives
  • Facilities producing energy from certain renewable resources credit
  • Deduction allowable with respect to income attributable to domestic production activities in Puerto Rico
  • Special rule relating to qualified timber gain.
  • American Samoa economic development credit
  • Nonbusiness energy credit
  • Special rule for sales or dispositions to implement FERC or State electric restructuring policy for qualified electric utilities
  • Excise tax credits relating to alternative fuels
  • Oil Spill Liability Trust Fund financing rate
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