The Tax Cuts and Jobs Act, which was signed into law on Dec. 22, 2017, was hailed by many as the most sweeping tax legislation in the United States since the Tax Reform Act of 1986. While the TCJA certainly did yield many changes to the U.S. tax system, it did not include several tax provisions (commonly referred to as “tax extenders”), which had previously expired on Dec. 31, 2016.
A couple months after the passage of the TCJA, the passage of the Bipartisan Budget Act of 2018 not only provided for an increase to the debt ceiling, additional domestic and military spending and disaster relief, but also retroactively reinstated through Dec. 31, 2017, (except as otherwise noted below) many of the previously expired tax extenders. While the nature of these tax extenders is varied, several of the provisions are energy-related. The following is a summary of the energy related tax extenders included in the BBA:
• IRC Section 25C, which provides a 10 percent credit for qualified nonbusiness energy-efficient improvements (including insulation, energy-efficient windows and doors, certain roofs, certain high-efficiency heating and air-conditioning systems, high-efficiency water heaters and stoves that burn biomass fuel);
• IRC Section 25D, which provides credits for residential energy property, qualified fuel cell property, small wind energy property, geothermal heat pump property, qualified solar electric property and solar water heating property. These provisions were extended through 2021;
• IRC Section 30B, which provides a credit for qualified fuel cell motor vehicles;
• IRC Section 30C, which provides a 30 percent credit for the cost of alternative fuel vehicle refueling property;
• IRC Section 40(b)(6), which provides a credit for the production of qualified second-generation biofuel;
• IRC Section 40A, which provides a credit for biodiesel and renewable diesel used as fuel;
• IRC Section 45, which provides credits for facilities producing electricity from certain renewable resources;
• IRC Section 45L, which provides up to $2,000 per dwelling unit credit for each qualified new energy-efficient home (including apartment buildings) constructed by an eligible contractor and acquired by a person from the eligible contractor for use as a residence during the tax year. Note that both substantial reconstruction and rehabilitation can also qualify for this credit;
• IRC Section 48, which provides credits for geothermal heat pump property, combined heat and power system property, qualified small wind energy property, qualified fuel cell property and qualified micro-turbine property. These provisions were extended through 2021;
• IRC Section 168(l), which provides a special depreciation allowance equal to 50 percent of the adjusted basis of qualified second-generation biofuel plant property; and
• IRC Section 179D, which allows a deduction of up to $1.80 per square foot for an energy-efficient commercial building. This deduction is not only available to the owners of privately held commercial buildings, but also to eligible designers and builders (including architects, engineers, contractors, etc.) of government buildings.
Please consult your tax adviser to determine how these energy-related tax extenders impact your specific situation.
Joel A. Bock, CPA, MST is a partner in Daniells Phillips Vaughan & Bock, a Bakersfield accounting firm.