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Budget Act

Thomson Reuters Checkpoint Special Study: Tax “extender” provisions in the Bipartisan Budget Act of 2018

Thomson Reuters Tax & Accounting  

Thomson Reuters Tax & Accounting  

On February 9, Congress passed, and the President signed into law, H.R. 1892, the “Bipartisan Budget Act of 2018” (the Budget Act, P.L. 115-123). In addition to providing a continuing resolution to fund the federal government through March 23, this 2-year budget contains a host of tax law changes. The Budget Act retroactively extends through 2017 over 30 so-called “extender” provisions, provides a number of miscellaneous tax-related provisions, and includes tax relief to victims of the California wildfires and Hurricanes Harvey, Irma, and Maria.

For other non-extender tax-related provisions included in the “Bipartisan Budget Act of 2018,” see ¶ 9 .

For disaster relief provisions included in the “Bipartisan Budget Act of 2018,” see ¶ 29 .

INDIVIDUAL EXTENDER PROVISIONS
Exclusion for Discharged Home Mortgage Debt Retroactively Extended Through 2017
Under pre-Budget Act law, discharge of indebtedness income from qualified principal residence debt, up to a $2 million limit ($1 million for married individuals filing separately), was, in tax years beginning before Jan. 1, 2017, excluded from gross income.

Under pre-Budget Act law, this exclusion didn’t apply to any debt discharged after Dec. 31, 2016.

New law. The Budget Act extends this exclusion for one years so that it applies to home mortgage debt discharged before Jan. 1, 2018. (Code Sec. 108(a)(1)(E), as amended by Budget Act Sec. 40201)

Mortgage Insurance Premiums as Deductible Qualified Residence Interest Retroactively Extended Through 2017
Under pre-Budget Act law, mortgage insurance premiums paid or accrued before Jan. 1, 2017 by a taxpayer in connection with acquisition indebtedness with respect to the taxpayer’s qualified residence were treated as deductible qualified residence interest, subject to a phase-out based on the taxpayer’s adjusted gross income (AGI). The amount allowable as a deduction was phased out ratably by 10% for each $1,000 by which the taxpayer’s adjusted gross income exceeded $100,000 ($500 and $50,000, respectively, in the case of a married individual filing a separate return). Thus, the deduction wasn’t allowed if the taxpayer’s AGI exceeded $110,000 ($55,000 in the case of married individual filing a separate return).

Under pre-Budget Act law, this provision only applied to premiums paid or accrued before Jan. 1, 2017 (and not properly allocable to any period after that date).

New law. Effective for amounts paid or accrued after Dec. 31, 2016, the Budget Act retroactively extends this provision for one year so that a taxpayer can deduct, as qualified residence interest, mortgage insurance premiums paid or accrued before Jan. 1, 2018 (and not properly allocable to any period after 2017). (Code Sec. 163(h)(3)(E)(iv), as amended by Budget Act Sec. 40202)

Above-the-Line Deduction for Higher Education Expenses Retroactively Extended Through 2017
Under pre-Budget Act law, eligible individuals could, for tax years beginning before Jan. 1, 2017, deduct higher education expenses—i.e., “qualified tuition and related expenses” of the taxpayer, his or her spouse, or dependents—as an adjustment to gross income to arrive at AGI. The maximum deduction was $4,000 for an individual whose AGI for the tax year didn’t exceed $65,000 ($130,000 in the case of a joint return), or $2,000 for individuals who didn’t meet the above AGI limit, but whose AGI didn’t exceed $80,000 ($160,000 in the case of a joint return). No deduction was allowed for an individual whose AGI exceeded the relevant limitations, for a married individual who did not file a joint return, or for an individual for whom a personal exemption deduction could have been claimed by another taxpayer for the tax year.

Under pre-Act law, this deduction wasn’t available for tax years beginning after Dec. 31, 2016.

New law. Effective for tax years beginning after Dec. 31, 2016, the Budget Act retroactively extends through 2017 the above-the-line deduction for qualified tuition and related expenses for higher education. (Code Sec. 222(e), as amended by Budget Act Sec. 40203)

BUSINESS EXTENDER PROVISIONS
Indian Employment Credit Extended Through 2017
Under pre-Budget Act law, the Indian employment credit, for tax years beginning before Jan. 1, 2017, was 20% of the excess, if any, of the sum of qualified wages and qualified employee health insurance costs (not in excess of $20,000 per employee) paid or incurred (other than paid under salary reduction arrangements) to qualified employees (enrolled Indian tribe members and their spouses who meet certain requirements) during the tax year, over the sum of these same costs paid or incurred in calendar year ’93.

Under pre-Budget Act law, the credit didn’t apply for any tax year beginning after Dec. 31, 2016.

New law. The Budget Act retroactively extends the Indian employment credit for one year to tax years beginning before Jan. 1, 2018. (Code Sec. 45A(f), as amended by Budget Act Sec. 40301)

7-Year Writeoff for Motorsport Racing Track Facilities Extended Through 2017
Under pre-Budget Act law, for property placed in service before Jan. 1, 2017, Code Sec. 168(i)(15) provided a short 7-year cost recovery period applies to property used for land improvement and support facilities at motorsports entertainment complexes.

Under pre-Budget Act law, the short writeoff period only applied for property placed in service after Dec. 31, 2016.

New law. The Budget Act retroactively extends for one year the 7-year straight line cost recovery period for motorsports entertainment complexes. The quick writeoff applies to qualifying motorsports entertainment complexes placed in service before Jan. 1, 2018. (Code Sec. 168(i)(15)(D), as amended by Budget Act Sec. 40305)

Expensing Election for Costs of Film and TV Production Extended Through 2017
Under pre-Budget Act law, for productions beginning before Jan. 1, 2017, taxpayers could elect under Code Sec. 181 to expense production costs of qualified film and television (TV) productions and qualified theatrical productions in the U.S. Expensing didn’t apply to the part of the cost of any qualifying film or TV production that exceeded $15 million for each qualifying production. The limit was $20 million if production expenses were “significantly incurred” in areas (1) eligible for designation as a low-income community, or (2) eligible for designation by the Delta Regional Authority (a federal-state partnership covering parts of certain states) as a distressed county or isolated area of distress.

Under pre-Act law, these rules didn’t apply to qualified film and TV productions beginning after Dec. 31, 2016.

New law. The Budget Act retroactively extends for one year the expensing election for costs of film and TV production and qualified theatrical productions for productions beginning before Jan. 1, 2018. (Code Sec. 181(g), as amended by Budget Act Sec. 40308)

Domestic Production Activities Deduction Rules for Puerto Rico Extended Through 2017
Before repeal by the Tax Cuts and Jobs Act (TCJA; P.L. 115-123, 12/22/2017) for tax years beginning after Dec. 31, 2017, a taxpayer was allowed a deduction under former Code Sec. 199 from taxable income (or AGI, in the case of an individual) that was equal to 9% of the lesser of the taxpayer’s qualified production activities income (QPAI) or taxable income for the tax year. QPAI was generally domestic production gross receipts (DPGR) reduced by the sum of: (1) the costs of goods sold that were allocable to those receipts; and (2) other expenses, losses, or deductions which were properly allocable to those receipts. The amount of the deduction for a tax year was limited to 50% of the wages paid by the taxpayer, and properly allocable to DPGR, during the calendar year that ends in the tax year. Except as provided below, wages paid to bona fide residents of Puerto Rico generally were not included in wages for purposes of computing the wage limitation amount.

Under pre-Budget Act law, for the first eleven years of a taxpayer beginning after Dec. 31, 2005 and before Jan. 1, 2017, Puerto Rico was included in the term “U.S.” in determining DPGR, but only if all of the taxpayer’s Puerto Rico-sourced gross receipts were taxable under the federal income tax for individuals or corporations. In computing the 50% wage limitation, the taxpayer was allowed to take into account wages paid to bona fide residents of Puerto Rico for services performed in Puerto Rico.

New law. The Budget Act retroactively extends the special domestic production activities rules for Puerto Rico for one year through 2017. Under the Budget Act, these special rules for Puerto Rico apply for the first twelve tax years of a taxpayer beginning after Dec. 31, 2005 and before Jan. 1, 2018. (Code Sec. 199(d)(8)(C), as amended by Budget Act Sec. 40309)

Alternative Tax Rate for Corporation’s Timber Gains Extended Through 2017
Under Code Sec. 631(a), if a taxpayer cuts standing timber, the taxpayer may elect to treat the cutting as a sale or exchange eligible for capital gains treatment. The timber’s fair market value (FMV) on the first day of the tax year in which the timber is cut is used to determine the gain attributable to the cutting. The FMV is considered the taxpayer’s cost of the cut timber for all purposes, including in determining the taxpayer’s income from later sales of the timber or timber products. Under Code Sec. 631(b), if a taxpayer disposes of the timber with a retained economic interest or makes an outright sale of the timber, the gain is eligible for capital gain treatment. Treatment under either of these provisions requires that the taxpayer has owned the timber or held the contract right for a period of more than one year.

Before repeal by the Tax Cuts and Jobs Act effective for tax years beginning after Dec. 31, 2017, a corporation was subject to a 23.8% alternative tax rate on the portion of its taxable income in 2016 that consisted of qualified timber gain (or, if less, the net capital gain) for a tax year. (Former Code Sec. 1201(b)(1)) Qualified timber gain meant the net gain described in Code Sec. 631(a) and Code Sec. 631(b) for the tax year, determined by taking into account only trees held more than 15 years. (Former Code Sec. 1201(b)(2)) The alternative 23.8% maximum tax rate for qualified timber gains of C corporations under Code Sec. 1201(b). (Budget Act Sec. 30310)

New law. The Budget Act extends the alternate tax treatment of timber gain through 2017. (Budget Act Sec. 30310)
Empowerment Zone Tax Breaks Extended Through 2017
The designation of an economically depressed census tract as an “Empowerment Zone” renders businesses and individual residents within such a Zone eligible for special empowerment zone tax incentives, including: the 20% wage credit under Code Sec. 1396; liberalized Code Sec. 179 expensing rules ($35,000 extra expensing and the break allowing only 50% of expensing eligible property to be counted for purposes of the investment-based phaseout of expensing); tax-exempt bond financing under Code Sec. 1394; and deferral under Code Sec. 1397B of capital gains tax on sale of qualified assets sold and replaced.

Under pre-Budget Act law, Empowerment Zone designations expired on Dec. 31, 2016.

New law. The Budget Act extends for one year, through Dec. 31, 2017, the period for which the designation of an empowerment zone is in effect. (Code Sec. 1391(d)(1)(A)(i) as amended by Budget Act Sec. 30311(a)(1))

For tax years beginning after Dec. 31, 2016, the Act provides that, in the case of a designation of an empowerment zone, the nomination for which included a termination date of Dec. 31, 2016, termination will not apply with respect to that designation if the entity which made the nomination amends the nomination to provide for a new termination date in such manner as IRS may provide. (Budget Act Sec. 30311(a)(2))

Miscellaneous Other Business Provisions
The Budget Act also retroactively extends the following one year, through 2017:

  • . . . Railroad track maintenance credit. (Code Sec. 45G(f), as amended by Budget Act Sec. 40302)
  • . . . Mine rescue team training credit. (Code Sec. 45N(e), as amended by Budget Act Sec. 40303)
  • . . . 3-year depreciation for race horses two years old or younger. (Code Sec. 168(e)(3)(A)(i)), as amended by Budget Act Sec. 40304)
  • . . . Accelerated depreciation for business property on an Indian reservation. (Code Sec. 168(j)(9), as amended by Budget Act Sec. 40306)
  • . . . Election to expense advanced mine safety equipment. (Code Sec. 179E(g), as amended by Budget Act Sec. 40307)
  • . . . American Samoa economic development credit. (Budget Act Sec. 40312)

The temporary increase in limit on cover over of rum excise tax revenues (from $10.50 to $13.25 per proof gallon) to Puerto Rico and the Virgin Islands, extended for five years. (Budget Act Sec. 41102)

ENERGY EXTENDER PROVISIONS
Nonbusiness Energy Property Credit Extended Through 2017
Under Code Sec. 25C, a taxpayer could claim a credit up to a $500 lifetime limit (with no more than $200 from windows and skylights) over the aggregate of the credits allowed to the taxpayer for all earlier tax years. The credit equalled the sum of: (1) 10% of the amount paid or incurred by the taxpayer for qualified energy efficiency improvements installed during the tax year, and (2) the amount of the residential energy property expenditures paid or incurred by the taxpayer during the tax year. The credit for residential energy property expenditures couldn’t exceed: (i) $50 for an advanced main circulating fan; (ii) $150 for any qualified natural gas, propane, or hot water boiler; and (iii) $300 for any item of energy-efficient building property. Qualified energy efficiency improvements were energy efficient building envelope components that met certain criteria, such as (a) insulation materials or systems specifically and primarily designed to reduce heat loss/gain; or (b) exterior windows, skylights or doors, or any metal roof with pigmented coating or asphalt roof with cooling granules specifically designed to reduce heat gain, installed on a dwelling unit.

Under pre-Budget Act law, the credit wasn’t available for property placed in service after Dec. 31, 2016.

New law. The Budget Act extends the nonbusiness energy property credit for one year, through Dec. 31, 2017. (Code Sec. 25C(g)(2), as amended by Budget Act Sec. 40401)

Residential Energy-Efficient Property Credit Extended Through 2021
Under Code Sec. 25D, an individual is allowed a nonrefundable personal tax credit for the purchase of residential energy efficient property (REEP)—i.e., qualified solar electric property and qualified solar water heating property. The credit is available for the “applicable percentage.” That percentage is 30% for property placed in service after Dec. 31, 2016 and before Jan. 1, 2020, 26% for property placed in service in 2020, and 22% for property placed in service in 2021.

For property placed in service before 2017 (Code Sec. 25D(h) before amended by Budget Act), an individual was also allowed a 30% nonrefundable personal tax credit for the purchase of : (a) qualified fuel cell property; (b) qualified small wind energy property; and (c) qualified geothermal heat pump property. (Code Sec. 25d(a) before amended by Budget Act)

New law. For property placed in service after Dec. 31, 2016, the Budget Act extends the residential energy-efficient solar property credits, at the “applicable percentage” described above, for five years; the credit applies to all of the above-described property placed in service before Jan. 1, 2022. (Code Sec. 25D(a)Code Sec. 25D(g)Code Sec. 25D(h), as amended by Budget Act Sec. 40402(a))

Credit for Fuel Cell Vehicles Extended Through 2017
Under Code Sec. 30B, a taxpayer could claim a credit for vehicles propelled by chemically combining oxygen with hydrogen and creating electricity. The base credit was $4,000 for vehicles weighing 8,500 pounds or less. Heavier vehicles could get up to a $40,000 credit, depending on their weight. An additional $1,000 to $4,000 credit was available to cars and light trucks to the extent their fuel economy exceeded the 2002 base fuel economy set forth in the Code.

Under pre-Budget Act law, this provision didn’t apply to property placed in service after Dec. 31, 2016.

New law. The Budget Act extends the credit for one year, through Dec. 31, 2017. (Code Sec. 30B(k)(1), as amended by Budget Act Sec. 40403)

Alternative Fuel Vehicle Refueling Property Credit Extended Through 2017

Under pre-Budget Act law, a taxpayer could, for property placed in service before Jan. 1, 2017, claim a 30% credit for the cost of installing non-hydrogen alternative vehicle refueling property for use in the taxpayer’s trade or business (up to $30,000 maximum per year per location) or installed at the taxpayer’s principal residence (up to $1,000 per year per location).

Under pre-Budget Act law, this provision didn’t apply to property placed in service after Dec. 31, 2016.

New law. The Budget Act extends the credit for one year, so that it applies to property placed in service before Jan. 1, 2018. (Code Sec. 30C(g), as amended by Budget Act Sec. 40404)

Credit for 2-Wheeled Plug-in Electric Vehicles Extended Through 2017
Under pre-Budget Act law, a taxpayer could, for vehicles purchased before Jan. 1, 2017, claim a 10% credit on the purchase of certain electric powered 2- or 3-wheeled vehicles manufactured primarily for use on public streets, roads and highways and capable of at least 45 miles per hour. To qualify, a vehicle had to be a 2-wheeled (e.g., motor scooter) or 3-wheeled vehicle propelled to a significant extent by a rechargeable battery with a capacity of at least 2.5 kilowatt hours. The maximum credit was $2,500.

Under pre-Budget Act law, this credit didn’t apply to vehicles purchased after Dec. 31, 2016.

New law. The Budget Act extends the credit for vehicles that have two wheels so that it applies to vehicles acquired before Jan. 1, 2018. (Code Sec. 30D(g)(3)(E)(ii), as amended by Budget Act Sec. 40405)

Second Generation Biofuel Producer Credit Extended Through 2017
Under pre-Budget Act law, a producer of qualified biofuel produced after Dec. 31, 2008, could claim a credit, as part of the alcohol fuel credit, for each gallon of “qualified second generation biofuel production.” The credit was equal to the “applicable amount” ($1.01) for each gallon of qualified second generation biofuel production.

Under pre-Budget Act law, this credit didn’t apply to second generation biofuel produced after Dec. 31, 2016.

New law. The Budget Act extends the credit for one year, i.e., to production before Jan. 1, 2018. (Code Sec. 40(b)(6)(J), as amended by Budget Act Sec. 40406)

Biodiesel and Renewable Diesel Tax Credits Extended Through 2017
Under pre-Budget Act law, for fuels sold or used before Jan. 1, 2017, the biodiesel and renewable diesel credit was allowed as a component of the general business income tax credit for fuels sold or used in the U.S. The biodiesel portion of the credit consisted of three parts: a $1.00 per gallon biodiesel mixture credit, a $1.00 per gallon biodiesel credit, and a 10¢ per gallon small agri-biodiesel producer credit. Renewable diesel, i.e., diesel fuel created from biomass, qualified for the above two $1.00 credits. (Code Sec. 40A(a))

There also are excise tax credits for biodiesel mixtures. (Code Sec. 6426(c)Code Sec. 6427(e))

Under pre-Budget Act law, these credits weren’t available for fuels sold or used after Dec. 31, 2016.

New law. The Act extends the biodiesel fuels income tax credit (Code Sec. 40A(g), as amended by Budget Act Sec. 40407(a)) and the excise tax credits (Code Sec. 6426(c)(6) and Code Sec. 6427(e)(6)(B) , as amended by Budget Act Sec. 40407(b)) for one year, i.e., through Dec. 31, 2017.

Special excise tax credit rule for 2017. Notwithstanding any other provision of law, in the case of any biodiesel mixture credit properly determined under Code Sec. 6426(c) for the period beginning on Jan. 1, 2017, and ending on Dec. 31, 2017, the credit will be allowed, and any refund or payment attributable to the credit (including any payment under Code Sec. 6427(e)) will be made, only in such manner as IRS provides. IRS will issue guidance by Mar. 11, 2018 providing for a one-time submission of claims covering periods described in the preceding sentence. The guidance will provide for a 180-day period for the submission of the claims (in such manner as prescribed by IRS) to begin not later than 30 days after the guidance is issued. The claims will be paid by IRS not later than 60 days after receipt. If IRS has not paid pursuant to a claim filed under this subsection within 60 days after the date of the filing of the claim, the claim will be paid with interest from that date determined by using the overpayment rate and method under Code Sec. 6621.

Production Credit for Indian Coal Facilities Extended Through 2017
Under pre-Budget Act law, a credit based on the production of Indian coal was available to producers of Indian coal at Indian coal facilities during the 11-year period beginning on Jan. 1, 2006 (i.e., before 2017). For 2017, the credit had expired.

New law. The Budget Act extends the credit for one year, i.e., it provides a credit for producers of Indian coal at Indian coal facilities during the 12-year periodbeginning on Jan. 1, 2006 (i.e., before Jan. 1, 2018). (Code Sec. 45(e)(10)(A), as amended by Budget Act Sec. 40408)

Renewable Electricity Production Credit Extended Through 2017
An income tax credit is allowed for the production of electricity from qualified energy resources at qualified facilities (the “renewable electricity production credit”). Qualified energy resources means wind, closed-loop biomass, open-loop biomass, geothermal energy, solar energy, small irrigation power, municipal solid waste, qualified hydropower production, and marine and hydrokinetic renewable energy. Qualified facilities are, generally, facilities that generate electricity using qualified energy resources.

Under pre-Budget Act law, qualifying facilities generating electricity using closed-loop biomass, open-loop biomass, geothermal energy, land fill gas and trash (both of which used municipal solid waste), qualified hydropower, and marine and hydrokinetic renewable energy facilities had to have begun constructions before Jan. 1, 2017, to claim the credit.

In addition, under pre-Budget Act law, taxpayers could elect to have qualified property which is part of a Code Sec. 45 qualified facility, which were placed in service after 2008 and the construction of which begins before Jan. 1, 2017, treated as property eligible for an energy credit under Code Sec. 48.

New law. The Budget Act extends by a year the date by which construction of a qualifying facility must begin, i.e., to before Jan. 1, 2018, for the following facilities: qualifying closed-loop biomass, open-loop biomass, geothermal energy, land fill gas and trash, qualified hydropower, and marine and hydrokinetic renewable energy facilities. (Code Sec. 45(d)(2)(A)Code Sec. 45(d)(3)(A)Code Sec. 45(d)(4)(B)Code Sec. 45(d)(6) , Code Sec. 45(d)(7)Code Sec. 45(d)(9), and Code Sec. 45(d)(11)(B), as amended by Budget Act Sec. 40409(a))

In addition, the Budget Act extended the above qualified facilities eligible to be treated as property for an energy credit under Code Sec. 48, to facilities which were placed in service after 2008 and the construction of which begins before Jan. 1, 2018. (Code Sec. 48(a)(5). (Budget Act Sec. 40409(b))

New Energy Efficient Home Credit Extended Through 2017
Under Code Sec. 45L, an eligible contractor could claim a credit of $2,000 or $1,000 (depending on the projected level of fuel consumption) for each qualified new energy efficient home constructed by the contractor and acquired by a person from the contractor for use as a residence during the tax year. Under pre-Budget Act law, the new energy efficient home credit didn’t apply to homes acquired after Dec. 31, 2016.

New law. The Budget Act extends the credit for energy-efficient new homes for one year, i.e., to homes acquired before Jan. 1, 2018. (Code Sec. 45L(g), as amended by Budget Act Sec. 40410)

Extension and Phaseout of Energy Credits
Under pre-Budget Act law, among the energy credits a taxpayer could claim were the following (in each case, the percentage applied to the basis of eligible energy property placed in service during the year):

  • . . . 30% for qualified fuel cell property for periods ending before Jan. 1, 2017, not to exceed an amount equal to $1,500 for each 0.5 KW of capacity.
  • . . . 30% for fiber optic solar energy property, i.e., equipment which uses solar energy to illuminate the inside of a structure using fiber-optic distributed sunlight, for periods ending before Jan. 1, 2017.
  • . . . 30% for qualified small wind energy property for periods ending before Jan. 1, 2017.
  • . . . 10% for thermal energy property, i.e., equipment which uses the ground or ground water as a thermal energy source to heat a structure or as a thermal energy sink to cool a structure, but only with respect to periods ending before Jan. 1, 2017.
  • . . . 10% for qualified microturbine property, not to exceed $200 for each KW of the property’s capacity, for periods ending before Jan. 1, 2017.
  • . . . 10% for combined heat and power system property for periods ending before Jan. 1, 2017.

New law. The Budget Act extends the definition of fiber optic solar energy property (subject to a phaseout below) and thermal energy property, to include property the construction of which begins before Jan. 1, 2022. (Code Sec. 48(a)(3)(A)(ii) and Code Sec. 48(a)(3)(A)(vii) , as amended by Budget Act Sec. 40411(a))

The Budget Act also extends the definition of qualified fuel cell property, qualified microturbine property, combined heat and power system property, and small wind energy property to include property the construction of which begins before Jan. 1, 2022. (Code Sec. 48(c)(1)(D)Code Sec. 48(c)(2)(D)Code Sec. 48(c)(3)(A)(iv)Code Sec. 48(c)(4)(C), as amended by Budget Act Sec. 40411(c)–40411(f))

The Budget Act also adds a phaseout for the energy credit percentage for fiber-optic solar property, qualified fuel cell property, and qualified small wind energy property—reducing the percentage to 26% for property the construction of which begins after Dec. 31, 2019 and before Jan. 1, 2021; and to 22% for property the construction of which begins after Dec. 31, 2020 and before Jan. 1, 2022—with the energy percentage dropping to zero for any such property which is not placed in service before Jan. 1, 2024. (Code Sec. 48(a)(7), as amended by Budget Act Sec. 40411(b))

Bonus Depreciation for Second Generation Biofuels Property Extended Through 2017
Under Code Sec. 168(l), qualified second generation biofuel plant property qualified for first-year 50% bonus depreciation and an exemption from the alternative minimum tax depreciation adjustment. Qualified second generation biofuel plant property is depreciable property which is used in the U.S. solely to produce second generation biofuel, the original use of which commences with the taxpayer, which is acquired by the taxpayer by purchase, and which was placed in service by the taxpayer before Jan. 1, 2017. Second generation biofuel generally is liquid fuel derived by or from any qualified feedstocks and that meets EPA registration requirements.

New law. The Budget Act extends for one year the bonus depreciation allowance for biofuel plant property under Code Sec. 168(l), so that it applies to property placed in service before Jan. 1, 2018. (Code Sec. 168(l)(2)(D), as amended by Budget Act Sec. 40412)

Energy Efficient Commercial Building Deduction Extended Through 2017
Under Code Sec. 179D, a deduction was allowed in an amount equal to the cost of “energy efficient commercial building property” (i.e., energy efficient improvements to lighting, heating, cooling, ventilation, and hot water systems of commercial buildings) placed in service during the tax year. The maximum deduction for any building for any tax year was the excess (if any) of the product of $1.80, and the square footage of the building, over the aggregate amount of the deduction under Code Sec. 179D for the building for all earlier tax years.

Under pre-Budget Act law, this deduction didn’t apply to property placed in service after Dec. 31, 2016.

New law. The Budget Act extends the deduction for one year, so that it applies to property placed in service before Jan. 1, 2018. (Code Sec. 179D(h), as amended by Budget Act Sec. 40413)

Deferral of Gain on Sales of Electric Transmission Property Extended Through 2017
Under Code Sec. 451(k), a vertically integrated electric utility could elect to defer over eight years gain on sales of: (i) property used in the trade or business of providing electric transmission services; or (ii) any stock or partnership interest in an entity whose principal trade or business consists of providing electric transmission services to Federal Energy Regulatory Commission (FERC)-approved independent transmission companies.

Under pre-Act law, this deferral didn’t apply to sales that took place after Dec. 31, 2016.

New law. The Budget Act extends the gain deferral provision for one year, so that it applies to dispositions before Jan. 1, 2018. (Code Sec. 451(k), as amended by Budget Act Sec. 40414)

Alternative Fuels & Mixtures Excise Tax Credit Extended Through 2017
A 50¢-per-gallon (or gasoline gallon equivalent for non-liquid fuel) excise tax credit was allowed against the Code Sec. 4041 retail fuel excise tax liability for alternative fuel sold for use or used by a taxpayer. A credit was also allowed against the Code Sec. 4081 removal at terminal excise tax liability for alternative fuel used to produce an alternative fuel mixture for sale or use in the taxpayer’s trade or business. A taxpayer could claim an excise tax refund (or, in some cases, a credit against income tax) to the extent the taxpayer’s alternative fuel or mixture excise tax credit exceeded the taxpayer’s Code Sec. 4041 or Code Sec. 4081 liability. The alternative fuel and alternative fuel mixture excise tax credit, and the refund rules, generally didn’t apply for any sale or use after Dec. 31, 2016.

New law. The Budget Act extends the alternative fuel and alternative fuel mixture tax incentives through Dec. 31, 2017. (Code Sec. 6426(d)(5) and Code Sec. 6427(e)(6)(C), as amend by Budget Act Sec. 40415 (a))

Special rule for 2017. Notwithstanding any other provision of law, in the case of any alternative fuel credit properly determined under Code Sec. 6426(d) for the period beginning on Jan. 1, 2017, and ending on Dec. 31, 2017, the credit will be allowed, and any refund or payment attributable to such credit (including any payment under Code Sec. 6427(e)) will be made, only in such manner as IRS provides. IRS is directed to issue guidance by Mar. 10, 2018 providing for a one-time submission of claims covering periods described in the preceding sentence. Such guidance will provide for a 180-day period for the submission of such claims (in such manner as prescribed by IRS) to begin not later than 30 days after such guidance is issued. Such claims will be paid by IRS not later than 60 days after receipt. If IRS has not paid pursuant to a claim filed under this subsection within 60 days after the date of the filing of the claim, the claim will be paid with interest from that date determined by using the overpayment rate and method under Code Sec. 6621. (Budget Act Sec. 40415(b))

Oil Spill Liability Trust Fund Financing rate Extended Through 2018
An environmental excise tax is imposed under Code Sec. 4611 and Code Sec. 4612, at a rate of 9¢-per-barrel for 2017 (the “oil spill liability tax” or “oil spill tax”) on crude oil received at U.S. refineries and on certain imported petroleum products. The tax applies only once with respect to any petroleum product. Under pre-Budget Act law, the tax terminated after Dec. 31, 2017.

New law. The Budget Act extends the 9¢-per-barrel tax through 2018. The extension applies on and after Mar. 1, 2018. Code Sec. 4611(f)(2), as amended by Budget Act Sec. 40416)

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