A few comments and links for the extenders bill PL (12/18/15) + Sections 179 and 25D as amended

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1 A few cmments and links fr the extenders bill PL (12/18/15) + Sectins 179 and 25D as amended The extenders bill includes a lt f changes. While nly abut 52 prvisins expired at 12/31/14, the extenders legislatin included ver 120 tax changes. P.L (12/18/15) H.R. 2029, Cnslidated Apprpriatins Act 2016 includes apprpriatins and ther changes alng with the Prtecting Americans frm Tax Hikes Act f 2015 (PATH), which is the extenders bill (and mre). P.L als extends the Internet Tax Freedm Act t 10/1/16. The bulk f the tax changes are in PATH (Divisin Q f PL ), althugh a few, including a 2 year extensin f the Cadillac ACA tax ( 4980I) frm 2018 t 2020 (and making it deductible) are in the apprpriatins bill H.R (see 1 page summary f the nn-path tax changes frm the Huse Ways and Means Cmmittee; Divisin P f the full legislatin). In additin, the apprpriatins bill (Sec. 633) extends the Internet Tax Freedm Act t 10/1/16. Fr several f the changes, yu really need t see the changes inserted int the Cde sectin as it existed befre the change t get the full effect f the change. I have tw examples belw Sectin 179 and Sectin 25D. CAUTION: When yu read Cde sectins mdified by PL (r by any ther legislatin), be sure t cnfirm the effective dates f the changes. Even fr multiple changes t the same Cde sectin, the effective dates might nt be the same. Fr example, the PATH changes t Sectin 179 (shwn belw) include the higher dllar amunts that are effective fr tax years beginning after 2014, but als includes changes t remve the $250,000 limit fr qualified real prperty, but that change is effective fr tax years beginning after The language frm PL n the effective dates fr the Sectin 179 changes are shwn belw fllwing the text f changed Sectin 179. Links/Resurces t PL Full legislatin (apprpriatins and PATH) page duble-spaced versin r the single-spaced 887 page versin. Changes in the apprpriatins bill are in Divisin P. Changes in PATH (extenders) are in Divisin Q. Resurces n PATH (extenders): Overview frm Huse Ways and Means Cmmittee (4 pages) Sectin-by-Sectin summary frm Senate Finance Cmmittee (20 pages). Text f PATH (233 pages) there are 127 sectins in PATH representing ver 127 changes t the law as many f the sectins, such as Sec. 124 dealing with changes t 179 that have multiple changes in them. Text f PATH with links t each f the 127 sectins. Jint Cmmittee n Taxatin dcuments: Technical Explanatin (JCX (12/17/15) (268 pages) Estimated Revenue Budget Effects (JCX ; 12/16/15) Prepared by Annette Nellen

2 Estimated Budget Effects (nn-path items) (JCX ; 12/16/15) Ways and Means Cmmittee statement n the cst f tax extenders. 12/15/15 press release frm Senatrs Hatch and Wyden and Cngressman Brady Electin t expense certain depreciable business assets (a) Treatment as expenses. A taxpayer may elect t treat the cst f any sectin 179 prperty as an expense which is nt chargeable t capital accunt. Any cst s treated shall be allwed as a deductin fr the taxable year in which the sectin 179 prperty is placed in service. (b) Limitatins (1) Dllar limitatin. The aggregate cst which may be taken int accunt under subsectin (a) fr any taxable year shall nt exceed $500,000shall nt exceed (A) $250,000 in the case f taxable years beginning after 2007 and befre 2010, (B) $500,000 in the case f taxable years beginning after 2009 and befre 2015, and (C) $25,000 in the case f taxable years beginning after (2) Reductin in limitatin. The limitatin under paragraph (1) fr any taxable year shall be reduced (but nt belw zer) by the amunt by which the cst f sectin 179 prperty placed in service during such taxable year exceeds exceeds $2,000,000. (A) $800,000 in the case f taxable years beginning after 2007 and befre 2010, (B) $2,000,000 in the case f taxable years beginning after 2009 and befre 2015, and (C) $200,000 in the case f taxable years beginning after (3) Limitatin based n incme frm trade r business (A) In general. The amunt allwed as a deductin under subsectin (a) fr any taxable year (determined after the applicatin f paragraphs (1) and (2)) shall nt exceed the aggregate amunt f taxable incme f the taxpayer fr such taxable year which is derived frm the active cnduct by the taxpayer f any trade r business during such taxable year. (B) Carryver f disallwed deductin. The amunt allwable as a deductin under subsectin (a) fr any taxable year shall be increased by the lesser f (i) the aggregate amunt disallwed under subparagraph (A) fr all prir taxable years (t the extent nt previusly allwed as a deductin by reasn f this subparagraph), r (ii) the excess (if any) f (I) the limitatin f paragraphs (1) and (2) (r if lesser, the aggregate amunt f taxable incme referred t in subparagraph (A)), ver (II) the amunt allwable as a deductin under subsectin (a) fr such taxable year withut regard t this subparagraph.

3 (C) Cmputatin f taxable incme. Fr purpses f this paragraph, taxable incme derived frm the cnduct f a trade r business shall be cmputed withut regard t the deductin allwable under this sectin. (4) Married individuals filing separately. In the case f a husband and wife filing separate returns fr the taxable year (A) such individuals shall be treated as 1 taxpayer fr purpses f paragraphs (1) and (2), and (B) unless such individuals elect therwise, 50 percent f the cst which may be taken int accunt under subsectin (a) fr such taxable year (befre applicatin f paragraph (3)) shall be allcated t each such individual. (5) Limitatin n cst taken int accunt fr certain passenger vehicles (A) In general. The cst f any sprt utility vehicle fr any taxable year which may be taken int accunt under this sectin shall nt exceed $25,000. (B) Sprt utility vehicle. Fr purpses f subparagraph (A) (i) In general. The term sprt utility vehicle means any 4-wheeled vehicle (I) which is primarily designed r which can be used t carry passengers ver public streets, rads, r highways (except any vehicle perated exclusively n a rail r rails), (II) which is nt subject t sectin 280F, and (III) which is rated at nt mre than 14,000 punds grss vehicle weight. (ii) Certain vehicles excluded. Such term des nt include any vehicle which (I) is designed t have a seating capacity f mre than 9 persns behind the driver s seat, (II) is equipped with a carg area f at least 6 feet in interir length which is an pen area r is designed fr use as an pen area but is enclsed by a cap and is nt readily accessible directly frm the passenger cmpartment, r (III) has an integral enclsure, fully enclsing the driver cmpartment and lad carrying device, des nt have seating rearward f the driver s seat, and has n bdy sectin prtruding mre than 30 inches ahead f the leading edge f the windshield. (6) INFLATION ADJUSTMENT. (A) IN GENERAL. In the case f any taxable year beginning after 2015, the dllar amunts in paragraphs (1) and (2) shall each be increased by an amunt equal t (i) such dllar amunt, multiplied by (ii) the cst-f-living adjustment determined under sectin 1(f)(3) fr the calendar year in which the taxable year begins, determined by substituting calendar year 2014 fr calendar year 1992 in subparagraph (B) theref. (B) ROUNDING. The amunt f any increase under subparagraph (A) shall be runded t the nearest multiple f $10,000. (c) Electin

4 (1) In general. An electin under this sectin fr any taxable year shall (A) specify the items f sectin 179 prperty t which the electin applies and the prtin f the cst f each f such items which is t be taken int accunt under subsectin (a), and (B) be made n the taxpayer s return f the tax impsed by this chapter fr the taxable year. Such electin shall be made in such manner as the Secretary may by regulatins prescribe. (2) Electin irrevcable. Any electin made under this sectin, and any specificatin cntained in any such electin, may nt be revked except with the cnsent f the Secretary. Any such electin r specificatin with respect t any taxable year beginning after 2002 and befre 2015 may be revked by the taxpayer with respect t any prperty, and such revcatin, nce made, shall be irrevcable. (d) Definitins and special rules (1) Sectin 179 prperty. Fr purpses f this sectin, the term sectin 179 prperty means prperty (A) which is (i) tangible prperty (t which sectin 168 applies), r (ii) cmputer sftware (as defined in sectin 197(e)(3)(B)) which is described in sectin 197(e)(3)(A)(i) and t which sectin 167 applies), t which sectin 167 applies, and which is placed in service in a taxable year beginning after 2002 and befre 2015, (B) which is sectin 1245 prperty (as defined in sectin 1245(a)(3)), and (C) which is acquired by purchase fr use in the active cnduct f a trade r business. Such term shall nt include any prperty described in sectin 50(b) and shall nt include air cnditining r heating units. (2) Purchase defined. Fr purpses f paragraph (1), the term purchase means any acquisitin f prperty, but nly if (A) the prperty is nt acquired frm a persn whse relatinship t the persn acquiring it wuld result in the disallwance f lsses under sectin 267 r 707(b) (but, in applying sectin 267(b) and (c) fr purpses f this sectin, paragraph (4) f sectin 267(c) shall be treated as prviding that the family f an individual shall include nly his spuse, ancestrs, and lineal descendants), (B) the prperty is nt acquired by ne cmpnent member f a cntrlled grup frm anther cmpnent member f the same cntrlled grup, and (C) the basis f the prperty in the hands f the persn acquiring it is nt determined (i) in whle r in part by reference t the adjusted basis f such prperty in the hands f the persn frm whm acquired, r (ii) under sectin 1014(a) (relating t prperty acquired frm a decedent). (3) Cst. Fr purpses f this sectin, the cst f prperty des nt include s much f the basis f such prperty as is determined by reference t the basis f ther prperty held at any time by the persn acquiring such prperty.

5 (4) Sectin nt t apply t estates and trusts. This sectin shall nt apply t estates and trusts. (5) Sectin nt t apply t certain nncrprate lessrs This sectin shall nt apply t any sectin 179 prperty which is purchased by a persn wh is nt a crpratin and with respect t which such persn is the lessr unless (A) the prperty subject t the lease has been manufactured r prduced by the lessr, r (B) the term f the lease (taking int accunt ptins t renew) is less than 50 percent f the class life f the prperty (as defined in sectin 168(i)(1)), and fr the perid cnsisting f the first 12 mnths after the date n which the prperty is transferred t the lessee the sum f the deductins with respect t such prperty which are allwable t the lessr slely by reasn f sectin 162 (ther than rents and reimbursed amunts with respect t such prperty) exceeds 15 percent f the rental incme prduced by such prperty. (6) Dllar limitatin f cntrlled grup. Fr purpses f subsectin (b) f this sectin (A) all cmpnent members f a cntrlled grup shall be treated as ne taxpayer, and (B) the Secretary shall apprtin the dllar limitatin cntained in subsectin (b)(1) amng the cmpnent members f such cntrlled grup in such manner as he shall by regulatins prescribe. (7) Cntrlled grup defined. Fr purpses f paragraphs (2) and (6), the term cntrlled grup has the meaning assigned t it by sectin 1563(a), except that, fr such purpses, the phrase mre than 50 percent shall be substituted fr the phrase at least 80 percent each place it appears in sectin 1563(a)(1). (8) Treatment f partnerships and S crpratins. In the case f a partnership, the limitatins f subsectin (b) shall apply with respect t the partnership and with respect t each partner. A similar rule shall apply in the case f an S crpratin and its sharehlders. (9) Crdinatin with sectin 38. N credit shall be allwed under sectin 38 with respect t any amunt fr which a deductin is allwed under subsectin (a). (10) Recapture in certain cases. The Secretary shall, by regulatins, prvide fr recapturing the benefit under any deductin allwable under subsectin (a) with respect t any prperty which is nt used predminantly in a trade r business at any time. (e) Special rules fr qualified disaster assistance prperty (1) In general. Fr purpses f this sectin (A) the dllar amunt in effect under subsectin (b)(1) fr the taxable year shall be increased by the lesser f (i) $100,000, r (ii) the cst f qualified sectin 179 disaster assistance prperty placed in service during the taxable year, and (B) the dllar amunt in effect under subsectin (b)(2) fr the taxable year shall be increased by the lesser f (i) $600,000, r

6 (ii) the cst f qualified sectin 179 disaster assistance prperty placed in service during the taxable year. (2) Qualified sectin 179 disaster assistance prperty. Fr purpses f this subsectin, the term qualified sectin 179 disaster assistance prperty means sectin 179 prperty (as defined in subsectin (d)) which is qualified disaster assistance prperty (as defined in sectin 168(n)(2)). (3) Crdinatin with empwerment znes and renewal cmmunities. Fr purpses f sectins 1397A and 1400J, qualified sectin 179 disaster assistance prperty shall nt be treated as qualified zne prperty r qualified renewal prperty, unless the taxpayer elects nt t take such qualified sectin 179 disaster assistance prperty int accunt fr purpses f this subsectin. (4) Recapture. Fr purpses f this subsectin, rules similar t the rules under subsectin (d)(10) shall apply with respect t any qualified sectin 179 disaster assistance prperty which ceases t be qualified sectin 179 disaster assistance prperty. (f) Special rules fr qualified real prperty (1) In general. If a taxpayer elects the applicatin f this subsectin fr any taxable year beginning after 2009 and befre 2015, the term sectin 179 prperty shall include any qualified real prperty which is (A) f a character subject t an allwance fr depreciatin, (B) acquired by purchase fr use in the active cnduct f a trade r business, and (C) nt described in the last sentence f subsectin (d)(1). (2) Qualified real prperty. Fr purpses f this subsectin, the term qualified real prperty means (A) qualified leasehld imprvement prperty described in sectin 168(e)(6), (B) qualified restaurant prperty described in sectin 168(e)(7), and (C) qualified retail imprvement prperty described in sectin 168(e)(8). (3) Limitatin. Fr purpses f applying the limitatin under subsectin (b)(1)(b), nt mre than $250,000 f the aggregate cst which is taken int accunt under subsectin (a) fr any taxable year may be attributable t qualified real prperty. (4) Carryver limitatin (A) In general. Ntwithstanding subsectin (b)(3)(b), n amunt attributable t qualified real prperty may be carried ver t a taxable year beginning after (B) Treatment f disallwed amunts. Except as prvided in subparagraph (C), t the extent that any amunt is nt allwed t be carried ver t a taxable year beginning after 2014 by reasn f subparagraph (A), this title shall be applied as if n electin under this sectin had been made with respect t such amunt. (C) Amunts carried ver frm 2010, 2011, 2012, and If subparagraph (B) applies t any amunt (r prtin f an amunt) which is carried ver frm a taxable year ther than the taxpayer s last taxable year beginning in 2014, such amunt (r prtin f an amunt) shall be treated fr purpses f this title as attributable t prperty placed in

7 service n the first day f the taxpayer s last taxable year beginning in Fr the last taxable year beginning in 2014, the amunt determined under subsectin (b)(3)(a) fr such taxable year shall be determined withut regard t this paragraph. (D) Allcatin f amunts. Fr purpses f applying this paragraph and subsectin (b)(3)(b) t any taxable year, the amunt which is disallwed under subsectin (b)(3)(a) fr such taxable year which is attributed t qualified real prperty shall be the amunt which bears the same rati t the ttal amunt s disallwed as (i) the aggregate amunt attributable t qualified real prperty placed in service during such taxable year, increased by the prtin f any amunt carried ver t such taxable year frm a prir taxable year which is attributable t such prperty, bears t (ii) the ttal amunt f sectin 179 prperty placed in service during such taxable year, increased by the aggregate amunt carried ver t such taxable year frm any prir taxable year. Fr purpses f the preceding sentence, nly sectin 179 prperty with respect t which an electin was made under subsectin (c)(1) (determined withut regard t subparagraph (B) f this paragraph) shall be taken int accunt. Effective Dates f PATH changes t 179 (PL , Sec. 124): (g) EFFECTIVE DATES. (1) EXTENSION. Except as prvided in paragraph (2), the amendments made by this sectin shall apply t taxable years beginning after December 31, (2) MODIFICATIONS. The amendments made by subsectins (c)(2) and (e) shall apply t taxable years beginning after December 31, 2015.* *(c) SPECIAL RULES FOR TREATMENT OF QUALIFIED REAL PROPERTY. (2) MADE PERMANENT. Sectin 179(f), as amended by paragraph (1), is amended (A) by striking beginning after 2009 and befre 2016 in paragraph (1), and (B) by striking paragraphs (3) and (4). (e) AIR CONDITIONING AND HEATING UNITS. Sectin 179(d)(1) is amended by striking and shall nt include air cnditining r heating units.

8 25D - Residential energy efficient prperty (a) Allwance f credit. In the case f an individual, there shall be allwed as a credit against the tax impsed by this chapter fr the taxable year an amunt equal t the sum f (1) 30 percentthe applicable percentage f the qualified slar electric prperty expenditures made by the taxpayer during such year, (2) 30 percentthe applicable percentage f the qualified slar water heating prperty expenditures made by the taxpayer during such year, (3) 30 percent f the qualified fuel cell prperty expenditures made by the taxpayer during such year, (4) 30 percent f the qualified small wind energy prperty expenditures made by the taxpayer during such year, and (5) 30 percent f the qualified gethermal heat pump prperty expenditures made by the taxpayer during such year. (b) Limitatins (1) Maximum credit fr fuel cells. In the case f any qualified fuel cell prperty expenditure, the credit allwed under subsectin (a) (determined withut regard t subsectin (c)) fr any taxable year shall nt exceed $500 with respect t each half kilwatt f capacity f the qualified fuel cell prperty (as defined in sectin 48(c)(1)) t which such expenditure relates. (2) Certificatin f slar water heating prperty. N credit shall be allwed under this sectin fr an item f prperty described in subsectin (d)(1) unless such prperty is certified fr perfrmance by the nn-prfit Slar Rating Certificatin Crpratin r a cmparable entity endrsed by the gvernment f the State in which such prperty is installed. (c) Carryfrward f unused credit. If the credit allwable under subsectin (a) exceeds the limitatin impsed by sectin 26(a) fr such taxable year reduced by the sum f the credits allwable under this subpart (ther than this sectin), such excess shall be carried t the succeeding taxable year and added t the credit allwable under subsectin (a) fr such succeeding taxable year. (d) Definitins. Fr purpses f this sectin (1) Qualified slar water heating prperty expenditure. The term qualified slar water heating prperty expenditure means an expenditure fr prperty t heat water fr use in a dwelling unit lcated in the United States and used as a residence by the taxpayer if at least half f the energy used by such prperty fr such purpse is derived frm the sun. (2) Qualified slar electric prperty expenditure. The term qualified slar electric prperty expenditure means an expenditure fr prperty which uses slar energy t generate

9 electricity fr use in a dwelling unit lcated in the United States and used as a residence by the taxpayer. (3) Qualified fuel cell prperty expenditure. The term qualified fuel cell prperty expenditure means an expenditure fr qualified fuel cell prperty (as defined in sectin 48(c)(1)) installed n r in cnnectin with a dwelling unit lcated in the United States and used as a principal residence (within the meaning f sectin 121) by the taxpayer. (4) Qualified small wind energy prperty expenditure. The term qualified small wind energy prperty expenditure means an expenditure fr prperty which uses a wind turbine t generate electricity fr use in cnnectin with a dwelling unit lcated in the United States and used as a residence by the taxpayer. (5) Qualified gethermal heat pump prperty expenditure (A) In general. The term qualified gethermal heat pump prperty expenditure means an expenditure fr qualified gethermal heat pump prperty installed n r in cnnectin with a dwelling unit lcated in the United States and used as a residence by the taxpayer. (B) Qualified gethermal heat pump prperty. The term qualified gethermal heat pump prperty means any equipment which (i) uses the grund r grund water as a thermal energy surce t heat the dwelling unit referred t in subparagraph (A) r as a thermal energy sink t cl such dwelling unit, and (ii) meets the requirements f the Energy Star prgram which are in effect at the time that the expenditure fr such equipment is made. (e) Special rules Fr purpses f this sectin (1) Labr csts. Expenditures fr labr csts prperly allcable t the nsite preparatin, assembly, r riginal installatin f the prperty described in subsectin (d) and fr piping r wiring t intercnnect such prperty t the dwelling unit shall be taken int accunt fr purpses f this sectin. (2) Slar panels. N expenditure relating t a slar panel r ther prperty installed as a rf (r prtin theref) shall fail t be treated as prperty described in paragraph (1) r (2) f subsectin (d) slely because it cnstitutes a structural cmpnent f the structure n which it is installed. (3) Swimming pls, etc., used as strage medium. Expenditures which are prperly allcable t a swimming pl, ht tub, r any ther energy strage medium which has a functin ther than the functin f such strage shall nt be taken int accunt fr purpses f this sectin. (4) Fuel cell expenditure limitatins in case f jint ccupancy. In the case f any dwelling unit with respect t which qualified fuel cell prperty expenditures are made and which is

10 jintly ccupied and used during any calendar year as a residence by tw r mre individuals, the fllwing rules shall apply: (A) Maximum expenditures fr fuel cells. The maximum amunt f such expenditures which may be taken int accunt under subsectin (a) by all such individuals with respect t such dwelling unit during such calendar year shall be $1,667 in the case f each half kilwatt f capacity f qualified fuel cell prperty (as defined in sectin 48(c)(1)) with respect t which such expenditures relate. (B) Allcatin f expenditures. The expenditures allcated t any individual fr the taxable year in which such calendar year ends shall be an amunt equal t the lesser f (i) the amunt f expenditures made by such individual with respect t such dwelling during such calendar year, r (ii) the maximum amunt f such expenditures set frth in subparagraph (A) multiplied by a fractin (I) the numeratr f which is the amunt f such expenditures with respect t such dwelling made by such individual during such calendar year, and (II) the denminatr f which is the ttal expenditures made by all such individuals with respect t such dwelling during such calendar year. (5) Tenant-stckhlder in cperative husing crpratin. In the case f an individual wh is a tenant-stckhlder (as defined in sectin 216) in a cperative husing crpratin (as defined in such sectin), such individual shall be treated as having made his tenantstckhlder s prprtinate share (as defined in sectin 216(b)(3)) f any expenditures f such crpratin. (6) Cndminiums (A) In general. In the case f an individual wh is a member f a cndminium management assciatin with respect t a cndminium which the individual wns, such individual shall be treated as having made the individual s prprtinate share f any expenditures f such assciatin. (B) Cndminium management assciatin. Fr purpses f this paragraph, the term cndminium management assciatin means an rganizatin which meets the requirements f paragraph (1) f sectin 528(c) (ther than subparagraph (E) theref) with respect t a cndminium prject substantially all f the units f which are used as residences. (7) Allcatin in certain cases. If less than 80 percent f the use f an item is fr nnbusiness purpses, nly that prtin f the expenditures fr such item which is prperly allcable t use fr nnbusiness purpses shall be taken int accunt. (8) When expenditure made; amunt f expenditure (A) In general. Except as prvided in subparagraph (B), an expenditure with respect t an item shall be treated as made when the riginal installatin f the item is cmpleted. (B) Expenditures part f building cnstructin. In the case f an expenditure in cnnectin with the cnstructin r recnstructin f a structure, such expenditure shall be

11 treated as made when the riginal use f the cnstructed r recnstructed structure by the taxpayer begins. (f) Basis adjustments. Fr purpses f this subtitle, if a credit is allwed under this sectin fr any expenditure with respect t any prperty, the increase in the basis f such prperty which wuld (but fr this subsectin) result frm such expenditure shall be reduced by the amunt f the credit s allwed. (g) APPLICABLE PERCENTAGE. Fr purpses f paragraphs (1) and (2) f subsectin (a), the applicable percentage shall be (1) in the case f prperty placed in service after December 31, 2016, and befre January 1, 2020, 30 percent, (2) in the case f prperty placed in service after December 31, 2019, and befre January 1, 2021, 26 percent, and (3) in the case f prperty placed in service after December 31, 2020, and befre January 1, 2022, 22 percent. (hg) Terminatin. The credit allwed under this sectin shall nt apply t prperty placed in service after December 31, 2016 (December 31, 2021, in the case f any qualified slar electric prperty expenditures and qualified slar water heating prperty expenditures). Effective Date f PATH changes t 25D (Sec. 304): Changes by Sectin 304 f Divisin P f P.L are effective n 1/1/17.