United States

Tax extenders package enacted as part of recent funding bill

More than 30 tax incentives were extended through 2017 or beyond

TAX ALERT  | 

On Feb. 9, 2018, the President signed the Bipartisan Budget Act of 2018, ending an hours-long government shutdown, funding the government through Mar. 23, 2018, and extending approximately 30 previously expired tax provisions. Among these provisions are extensions for fuel tax credits, energy credits, and certain individual deductions and credits. See the senate summary for a complete list of extensions.

Alternative Fuel Tax Credits – one year extension

Prior to 2017, the tax code included several fuel tax credits. Many of these provisions have expired and have had their expiration dates extended, sometimes retroactively. Section 40A provides for a $1.00 income tax credit for biodiesel and renewable diesel fuels but expired on Dec. 31, 2016. Section 6426(c) also contains a credit for biodiesel and renewable fuel but is a credit against the excise tax paid and cannot be used in conjunction with section 40A. Section 6426(d) allows for an excise tax credit for alternative fuel that was sold or used by the taxpayer for use as a fuel in a motor vehicle, motor boat, or in aviation. Section 6426(e) allows an excise tax credit for alternative fuel mixtures which consists of an alternative fuel mixed with a taxed fuel. The alternative fuel mixture credit is a credit on the alternative fuel that was used to produce a mixture for sale or use in the taxpayer’s trade or business. Both the alternative fuel and the mixture credits are equal to $0.50 per gasoline gallon equivalent but both expired as of Dec. 31, 2016. The new legislation extends the above fuel tax credits through Dec. 31, 2017.

Alternative fuels consist of liquefied petroleum gas, P Series fuels, compressed or liquefied natural gas, liquefied hydrogen, liquid fuel derived from coal through the Fischer-Tropsch process, compressed or liquefied gas derived from biomass, and liquefied fuel derived from biomass. Alternative fuel mixtures are mixtures of alternative fuels with a taxable fuel (gasoline, diesel, or kerosene).

With respect to the biodiesel and renewable diesel and the alternative fuel credits only (not the mixtures) the legislation also extends the expiration of the provisions that allows for a payment of the amount of the fuel credit that exceeds the amount taken against the excise tax. This provision is key as most of the excise tax rates are lower than the credit rates, making the payment provision the only way to realize the full $1.00 or $0.50 per gallon or gallon equivalent of the fuel. The new expiration date for these provisions is also Dec. 31, 2017. However, because of filing due dates for these claims (they must be filed by the last day of the period following the credit period) the legislation is requiring the IRS to provide one-time submission procedures for filing the claim. The IRS is required to issue these procedures within 30 days and are required to allow taxpayers 180 days to file the claim.

Energy credits

The new law also extends various energy credit provisions. The nonbusiness energy property and residential energy efficient property provisions of section 25C and 25D, respectively, were both extended. The nonbusiness energy property credit was extended until Dec. 31, 2017 and allows for a 10 percent credit on certain qualifying property up to $500. The residential energy efficient property credit was extended, with certain reduced-rate modifications, for property placed in service through 2021. The residential energy efficient property credit includes credits for geothermal systems that were not part of the extensions that occurred to the provision’s solar and wind credits previously.

In addition to the existing credits for wind and solar, the energy credits under the production tax credit (PTC) and investment tax credit (ITC) of sections 45(a) and 48, respectively, were also extended for other types of energy property. The PTC was extended with respect to facilities producing electricity from certain renewable sources for facilities which construction began by the end of 2017. Qualified facilities for the PTC include closed-loop and open-loop biomass, geothermal energy, landfill gas, municipal solid waste (trash), and hydropower. The ITC provides a 30 or 10 percent credit depending on the type of energy property constructed, including fuel cells, microturbines, combined heat and power systems, fiber-optic solar property, and geothermal heat pumps. The new law extends and modifies this provision with a phase out through 2020 or 2022 depending on the property.

Other energy credit extensions include the credits for new qualified fuel cell motor vehicles, alternative fuel vehicle refueling property, 2-wheeled plug-in electric vehicles. The section 45L credit for energy-efficient new homes and the energy efficient commercial buildings deduction under section 179D were also extended through 2017.

Individual deductions and credits

Certain individual deductions and credits were also extended. Of note is the extension through 2017 to the provision which treats qualified mortgage insurance premiums as interest for purposes of the mortgage interest deduction.

The extended tax incentives passed as part of the recent budget law cover a vast array of areas and can be difficult to navigate. Taxpayers should consult with their tax advisors if they have questions as to which provisions might apply to them or how to utilize such benefits.

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