Sheet Metal & Air Conditioning Contractors’ National Association

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New $2 trillion law includes SMACNA’s top tax priorities

Jan 11, 2016

On the final day before leaving on a long holiday vacation last year, the Congress passed and sent to the President a massive and long-awaited collection of tax incentives and spending initiatives.

The nearly $2 trillion tax and spending package was a compromise of Democratic and Republican priorities and was quickly signed by President Obama. The package included more than $600 billion in tax incentives, reductions, and credits, yet it left some industry priorities and provisions expiring in 2017 on the table for debate and passage when Congress returns for the 2016 session.

Tax Extenders

The long list of tax provisions includes many of SMACNA’s top tax priorities. They are:

  • Extension of 15-year straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements. The provision permanently extends the 15-year recovery period for qualified leasehold improvements, qualified restaurant property, and qualified retail improvement property.

  • Extension and modification of increased expensing limitations and treatment of certain real property as Section 179 property. The provision permanently extends the small business expensing limitation and phase-out amounts in effect from 2010 to 2014 ($500,000 and $2 million, respectively). These amounts currently are $25,000 and $200,000, respectively. The special rules that allow expensing for computer software and qualified real property (qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property) also are permanently extended.

  • Modifies the expensing provision’s limitation by indexing both the $500,000 and $2 million limits for inflation beginning in 2016 and by treating air conditioning and heating units placed in service in tax years beginning after 2015 as eligible for expensing. The provision further modifies the expensing limitation with respect to qualified real property by eliminating the $250,000 cap beginning in 2016.

  • Extension of reduction in S-corporation recognition period for built-in gains tax. The provision permanently extends the rule reducing to 5 years rather than 10 years the period for which an S corporation must hold its assets following conversion from a C corporation to avoid the tax on built-in gains.

  • Extension of temporary minimum low-income housing tax credit rates for non-federally subsidized buildings. The provision permanently extends application of the 9 percent minimum credit rate for the low-income housing tax credit for non-federally subsidized new buildings.

  • Extension of Qualified Zone Academy Bonds. The provision authorizes issuing $400 million qualified zone academy bonds during 2016. The proceeds are used for school renovations, equipment, teacher training, and course materials at a qualified zone academy, provided that private entities have promised to donate certain property and services to the academy with a value equal to at least 10 percent of the bond proceeds.

  • Extension and modification of empowerment zone tax incentives. The provision extends tax benefits through 2016 for certain businesses and employers operating in empowerment zones. Empowerment zones are economically distressed areas, and the tax benefits available include tax-exempt bonds, employment credits, increased expensing, and gain exclusion from the sale of certain small-business stock.

  • Extension and modification of credit for nonbusiness energy property. The provision extends through 2016 the credit for purchases of nonbusiness energy property. The provision allows a credit of 10 percent of the amount paid or incurred by the taxpayer for qualified energy improvements, up to $500.

  • Extension of credit for energy-efficient new homes. The provision extends through 2016 the tax credit for manufacturers of energy-efficient residential homes. An eligible contractor may claim a tax credit of $1,000 or $2,000 for the construction or manufacture of a new energy efficient home that meets qualifying criteria.

  • Extension of energy efficient commercial buildings deduction. The provision extends through 2016 the above-the-line deduction for energy efficiency improvements to lighting, heating, cooling, ventilation, and hot water systems of commercial buildings.

  • Updated ASHRAE standards for energy efficient commercial buildings deduction. The provision modifies the deduction for energy efficient commercial buildings by updating the energy efficiency standards to reflect new standards of the American Society of Heating, Refrigerating, and Air Conditioning Engineers beginning in 2016.

Tax Provisions in The Consolidated Appropriations Act of 2016 (Omnibus)

  • Delay the "Cadillac Tax" for two years. Among all its various mandates and regulations, the so-called “Cadillac Tax” penalizes employers who provide expensive, high quality coverage to their employees. For the next few years, multiemployers will not have to navigate what is sure to be a complex Internal Revenue Service (IRS) rulemaking process or need to implement the Cadillac Tax until 2020, if ever.