After narrowly approving their respective House and Senate versions of H.R. 1, the “Tax Cuts and Jobs Act,” the U.S. House and Senate met in conference to draft and pass a compromise version on Dec. 20, just in time for the pre-Christmas adjournment deadline.
The conference agreement, which President Trump signed on Dec. 22, significantly cuts corporate and individual taxes and seeks to simply the tax code, although most individual tax provisions would expire after 2025. It reduces the corporate tax from 35 percent to 21 percent and reduces taxation of so-called "pass-through" businesses where profits are taxed at the individual rate.
SMACNA had long advocated for lower corporate and pass-through business tax rates on contractors, maintaining tax advantages for private activity bonds (PABs), enhancing historic preservation/rehab tax credits, lowering estate taxes, and allowing HVAC and roofing investments to be considered expensing allowable property expenses.
For corporations, the legislation also establishes a new "territorial" tax system that exempts most overseas income from U.S. taxation. Most individual tax rate rates would be reduced by dropping the top rate from 39.6 percent to 37 percent, and eliminating personal exemptions. In addition, the standard deduction would nearly double, so fewer taxpayers will itemize deductions.
The bill contains a long list of provisions, many endorsed by SMACNA over the years. The key provisions include:
Seven individual income tax brackets would remain: 10 percent, 12 percent, 22 percent, 24 percent, 32 percent, 35 percent, and 37 percent. The top rate would fall from 39.6 percent.
The corporate tax rate would drop to 21 percent from the current 35 percent, effective 2018.
Lowering and improving pass-through tax rates for partnerships and S corporations by setting a 20 percent business income deduction for the first $315,000 in income earned by pass-through businesses.
A new provision allows for the IRS Section 179 capital expensing of roofing, fire safety, and HVAC upgrades for nonresidential structures, while also increasing the limit to $1 million.
Business interest deductions would be capped at 30 percent of income (excluding depreciation).
Retaining the tax advantages of private activity bonds (PABs) for state and local infrastructure after House repeal.
Retaining the historic preservation and rehab credits for construction and development.
Eliminating the corporate alternative minimum tax (AMT) but it retains individual AMT with higher limits.
The estate tax would remain but the exemption from it would be doubled to $11.2 million per individual.
Limiting state and local tax deductions. The plan would allow the deduction of up to $10,000 in state and local sales, income, or property taxes. This is especially punishing for at least a dozen states with above average levies.
The personal exemption would be eliminated, but the legislation would increase the standard deduction to nearly double its current level. It would go to $12,000 for an individual or $24,000 for a family.
For those who do itemize, mortgage interest could be deducted on up to $750,000 of a home loan.
Repeal of the 2010 health-care law's individual mandate, reducing health-care coverage benefits for 13 million insured taxpayers to help offset the measure's tax cuts.
A voluntary one-time repatriation tax levy of 7.5 percent with a 14.5 percent levy for returning cash assets.
Tax extenders introduced in Senate. Committee action soon. Floor action by spring.
179D Commercial Building Energy Retrofits, Tax Extenders Act (S. 2256).
During the summer, Reps. Dave Reichert (R-8th-Wash.), Earl Blumenauer (D-3rd-Ore.), and Tom Reed (R-23rd-N.Y.) introduced H.R. 3507, The 179D Extension Act.
The bill featured some modest reforms to the retrofit incentive and would make permanent the energy-efficient commercial buildings deduction. SMACNA strongly and often advocated for H.R. 3507.
All our individual and coalition advocacy had an impact, as now the Senate has included H.R. 3507 in the SMACNA-supported legislation, S. 2256, The Tax Extenders Act of 2017, a collection of important bills extending expired or expiring tax incentive provisions for both energy efficiency and nuclear power production. The tax extenders legislation would expand IRS Section 179D to include more generous tax incentives and would boost HVAC retrofits of commercial buildings.
SMACNA is making the case for lower tax rates while retaining targeted retrofit, rehab and construction project investment financing incentives that are vital to construction markets and building activity.
The Tax Extenders Act of 2017 (S. 2256) legislative package includes:
- Extension of IRS Section 179D.
- Tax incentives for solar, geothermal, efficient homes, combined heat and power, nuclear power financing, and empowerment zone construction bond financing.
This bill is expected to see action in the Senate Finance Committee sometime in January with floor action to follow soon after. House action on the extenders package awaits the Senate deliberation and passage.
Stay on top of legislative issues and contact your members of Congress with your views on SMACNA’s Advocacy webpage.