Originally posted in Thomson Reuters Checkpoint

On Dec. 20, 2019, President Trump signed into law the "Taxpayer Certainty and Disaster Tax Relief Act of 2019" (the "Disaster Act") as part of an omnibus spending package, the "Further Consolidated Appropriations Act, 2020" (H.R. 1865, PL 116-94). The Disaster Act extends over 30 Code provisions, generally through 2020.

The following list describes some of the major provisions that were extended and that may have an impact on your business. Please contact Green Hasson Janks Tax Advisors to discuss the effect of these provisions and how they may apply to your specific tax circumstances.

Extension of Expensing Rules for Certain Productions

The Code provides a deduction for qualified film, television and theatrical productions of up to $15 million of the aggregate cost ($20 million for certain areas) of a qualifying film, television or theatrical production in the year the expenditure was incurred. The Disaster Act extends this deduction through 2020 for productions commencing after Dec. 31, 2017.

Extension and Clarification of Excise Tax Credits Relating to Alternative Fuels

A $0.50 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 Disaster Act extends these incentives thru 2020.

SPECIAL RULE: 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, 2018 and ending with Sept. 30, 2019 (i.e., the close of the last calendar quarter beginning before Dec. 20, 2019), 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 soon and provide 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 no later than 30 days after such guidance is issued. Such claims will be paid by IRS no 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.

Additionally, the Disaster Act modifies the mixture component of the credit by specifying that liquefied petroleum gas, compressed or liquefied natural gas and compressed or liquefied gas derived from biomass are not eligible to be included in an alternative fuel mixture. (Code Sec. 6426 (e) (2), as amended by Disaster Act Sec. 133(b) (1)) This applies to (A) fuel sold or used on or after Dec. 20, 2019 and (B) fuel sold or used before Dec. 20, 2019, but only to the extent that claims for the credit under Code Sec. 6426(e) with respect to such sale or use (i) have not been paid or allowed as of Dec. 20, 2019 and (ii) were made on or after Jan. 8, 2018.

Qualified Cell Motor Vehicles

The Code provides a credit for purchases of new qualified fuel cell motor vehicles. The Code allows a credit of between $4,000 and $40,000, depending on the weight of the vehicle, for the purchase of such vehicles. Other vehicles, depending on their fuel efficiency, may qualify for an additional $1,000 to $4,000 credit. The Disaster Act extends this credit through 2020.

Alternative Fuel Refueling Property Credit

Under pre-Disaster Act law, a taxpayer could claim a 30-percent 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 the pre-Disaster Act law, this provision did not apply to property placed in service after Dec. 31, 2017. The Disaster Act extends this credit so that it applies to property placed in service before Jan. 1, 2021.

Energy-Efficient Commercial Buildings Deduction

The Code provides a deduction for energy efficiency improvements to lighting, heating, cooling, ventilation and hot water systems of commercial buildings. This includes a $1.80 deduction per square foot for construction on qualified property. A partial $0.60 deduction per square foot is allowed if certain subsystems meet energy standards, but the entire building does not qualify, including the interior lighting systems, the heating, cooling, ventilation and hot water systems and the building envelope. The Disaster Act extends these deductions to property placed into service before Jan. 1, 2021.

Exclusion from Gross Income of Discharge of Qualified Principal Residence Indebtedness

Under pre-Disaster 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, 2018 – excluded from gross income.

The Disaster Act retroactively extends this exclusion to discharges of indebtedness before Jan. 1, 2021 and also modifies the exclusion to apply to qualified principal residence indebtedness that is discharged pursuant to a binding written agreement entered into before Jan. 1, 2021. This applies to discharges of indebtedness after Dec. 31, 2017. (Code Sec. 108 (h) (2), as amended by Disaster Act Sec. 101(b))

Treatment of Mortgage Insurance Premiums as Qualified Residence Interest

Under pre-Disaster Act law, mortgage insurance premiums paid or accrued before Jan. 1, 2018 by a taxpayer in connection with acquisition indebtedness with respect to the taxpayer's qualified residence were treated as deductible qualified residence interest and 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 percent 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 was not allowed if the taxpayer's AGI exceeded $110,000 ($55,000 in the case of married individual filing a separate return). The Disaster Act extends this treatment through 2020 for amounts paid or incurred after Dec. 31, 2017.

Reduction in Medical Expense Deduction Floor

The Code provides that individuals (for 2017 and 2018) could claim an itemized deduction for unreimbursed medical expenses to the extent that such expenses exceeded 7.5 percent of AGI. The Disaster Act extends this threshold of 7.5 percent for tax years beginning after Dec. 31, 2018 and before Jan. 1, 2021.

Deduction of Qualified Tuition and Related Expenses

The Code provides an above-the-line deduction for qualified tuition and related expenses for higher education. The deduction is capped at $4,000 for an individual whose AGI does not exceed $65,000 ($130,000 for joint filers) or $2,000 for an individual whose AGI does not exceed $80,000 ($160,000 for joint filers). The Disaster Act retroactively extends this deduction through 2020. This applies to tax years beginning after Dec. 31, 2017.

Empowerment Zone Tax Incentives

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:

  • 20-percent wage credit under Code Sec. 1396
  • Liberalized Code Sec. 179 expensing rules ($35,000 extra expensing and the break allowing only 50 percent of expensing eligible property to be counted for purposes of the investment-based phase-out of expensing)
  • Tax-exempt bond financing under Code Sec. 1394
  • Deferral under Code Sec. 1397B of capital gains tax on sale of qualified assets sold and replaced

Under pre-Disaster Act law, Empowerment Zone designations expired on Dec. 31, 2017. The Disaster Act extends through Dec. 31, 2020, the period for which the designation of an empowerment zone is in effect and also provides that where a nomination of an empowerment zone included a termination date of Dec. 31, 2017. Termination will not apply with respect to the designation if, after Dec. 20, 2019. The entity that made such nomination amends the nomination, in such manner as the IRS may provide, to provide for a new termination date. This applies to tax years beginning after Dec. 31, 2017.

Biodiesel and Renewable Diesel

The Code provides a $1.00-per-gallon tax credit for biodiesel and biodiesel mixtures and the small agri-biodiesel producer credit of 10 cents per gallon. The Disaster Act extends the biodiesel fuels income tax credit and the excise tax credits through 2020.

SPECIAL EXCISE TAX CREDIT: 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, 2018, and ending on or with Sept. 20, 2019 (i.e., the close of the last calendar quarter beginning before Dec. 20, 2019), 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 Jan. 19, 2020, 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.

Additionally, the Disaster Act amends the Code to treat renewable diesel the same as biodiesel, except there is no small producer credit.

Nonbusiness Energy Property

The Code provides a credit for purchases of nonbusiness energy property. The Code allows a credit of 10 percent of the amounts paid or incurred by the taxpayer for qualified energy improvements to the building envelope (windows, doors, skylights and roofs) of principal residences. The Code allows credits of fixed dollar amounts ranging from $50 to $300 for energy-efficient property including furnaces, boilers, biomass stoves, heat pumps, water heaters, central air conditioners and circulating fans and is subject to a lifetime cap of $500. The Disaster Act retroactively extends this credit through 2020. This applies to property placed in service after Dec. 31, 2017.

Credit for Electricity Produced from Certain Renewable Resources

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-Disaster Act law, qualifying facilities generating electricity using closed-loop biomass, open-loop biomass, geothermal energy, landfill 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, 2018 to claim the credit.

In addition, under pre-Disaster 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, 2018, treated as property eligible for an energy credit under Code Sec. 48.

The Disaster Act extends the date by which construction of a qualifying facility must begin to before Jan. 1, 2021 for the following facilities:

  • Qualifying closed-loop biomass
  • Open-loop biomass
  • Geothermal energy
  • Landfill gas and trash
  • Qualified hydropower
  • Marine and hydrokinetic renewable energy facilities

In addition, the Disaster Act extends 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, 2021. (Code Sec. 48 (a) (5), as amended by Disaster Act Sec. 127(c) (2) (B))

For wind facilities, the construction of which begins in calendar year 2020, the Disaster Act reduces the credit by 40 percent. (Code Sec. 45 (b) (5), as amended by Disaster Act Sec. 127(c) (2) (A))

Energy Efficient Homes Credit

The Code provides a 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. The Disaster Act extends the credit for energy-efficient new homes to homes acquired before Jan. 1, 2021.

Special Allowance for Second Generation Biofuel Plant Property

The Code provides an additional first-year 50 percent bonus depreciation for cellulosic biofuel facilities. The Disaster Act extends this additional first-year 50-percent bonus depreciation to property placed into service before Jan. 1, 2021.

New Markets Tax Credit

The Code provides a New Markets Tax Credit, which is available to both individual and corporate taxpayers and is equal to 39 percent of the capital invested in a qualified community development entity (a for-profit or nonprofit entity that commits to the rules of the program, which in turn must loan to or invest substantially all of such capital in qualified businesses operating in low-income communities). The Disaster Act provides a $5 billion New Markets Tax Credit allocation for 2020 and also extends for one year (through 2025) the carryover period for unused New Markets Tax Credits. (Code Sec. 45D (f) (3), as amended by Disaster Act Sec. 141(b))

Employer Tax Credit for Paid Family and Medical Leave

The Code provides an employer credit for paid family and medical leave, which permits eligible employers to claim an elective general business credit based on eligible wages paid to qualifying employees with respect to family and medical leave. The credit is equal to 12.5 percent of eligible wages if the rate of payment is 50 percent of such wages and is increased by 0.25 percentage points (but not above 25 percent) for each percentage point that the rate of payment exceeds 50 percent. The maximum amount of family and medical leave that may be taken into account with respect to any qualifying employee is 12 weeks per tax year. The Disaster Act extends this credit through 2020.

Work Opportunity Tax Credit

The Code provides an elective general business credit to employers hiring individuals who are members of one or more of ten targeted groups under the Work Opportunity Tax Credit program. The Disaster Act extends this credit through 2020.

Look-through Rule for Related Controlled Foreign Corporations

The Code provides look-through treatment for payments of dividends, interest, rents and royalties between related controlled foreign corporations. The Disaster Act extends this look-through treatment through 2020.

If you have any questions or to understand the impact of the recent legislation on you and your business, please contact Green Hasson Janks Tax Experts by calling 310.873.1600.