Tax Cuts in 2015?

Tax Credits Poised to Receive Last Minute Stay of Execution
Rich Walker
December 9, 2014
COLUMN : Industry Watch | Codes & Standards

Housekeeping activities such as legislative extensions of tax credits are typically among those that get lost amid the politics until the last moment for Congress, and 2014 was no exception. Some 50 tax credits worth almost $42 billion were among those who received the nick-of-time reprieve on December 3, 2014 when the House voted 378-46 to reinstate them retroactive throughout 2014, setting the stage for a similar move in the Senate.

These tax provisions will remain expired at the end of 2014 without Senate acceptance, which was yet to be made at press time. If the bill survives the Senate and is signed by the President, businesses and individuals can claim the resurrected credits on their 2014 tax returns, retroactive to January 1, 2014. The outlook for ultimate acceptance was guardedly positive at press time, as outgoing Senate Majority Leader Harry Reid and President Obama indicated support, or at least lacked serious opposition.

Surviving Tax Credits
Many of the surviving tax credits are seen as needed to help U.S. manufacturers invest, expand and compete. Among them are the business research and development tax credit, which the National Association of Manufacturers (NAM) says “promotes private sector investment in innovation by reducing the after-tax cost of undertaking the research investment (e.g. salaries for scientists and engineers),” thus encouraging job and economic growth. Other reinvigorated provisions include bonus or accelerated depreciation such as that provided for by Section 179 of the IRS code.

More specific to the interests of our industry is the extension of the 10 percent “25C” homeowner income tax credit of up to $200 for installation of Energy Star qualified windows and skylights, and $500 for Energy Star exterior doors. Both are subject to a $500 lifetime limit per individual taxpayer. IRS Form 5695 must be filed to obtain the credit. Under the terms of the tax credit provision, the product(s) must be placed in service (installed) during the taxable year in order to claim the credit.  Additional guidance is available through the IRS website.

Likewise, the “45L” credit of up to $2,000 for new or substantially renovated energy-efficient homes (including apartments or condominium units not more than three stories above grade) can still be claimed by developers and eligible contractors per dwelling unit—a driving incentive for multifamily builders. The credit can be accessed by filing IRS Form 8908.

Commercial buildings and apartments of four or more stories can still claim for 2014 a “179D” tax deduction ranging from $0.60 to $1.80 per square foot based on energy simulation. The maximum deduction is given for a verified 50 percent energy savings, while the minimum requires a verified 25 to 40 percent savings. The credit allows commercial building and multifamily residence owners to take an immediate expense for the cost of property that would normally result in an extensive depreciation period.

Extensions and Promoting Growth
“Failure to extend the expired and expiring tax provisions would not only [have created] an immediate tax increase on manufacturers, but also on individuals, charitable organizations, and business of all sizes, and would inject instability into the economy at a time when we should be encouraging growth,” NAM noted.

However, despite a push by some members of Congress for a two-year extension, the current extension measure expired again as of December 31, 2014 covering only the 2014 tax year. Some saw the extension as a missed opportunity, pointing out that piecemeal extensions create uncertainty that makes it harder for businesses to plan from year to year. A long-term extension of the taxes would be more beneficial.

GOP lawmakers sought to make some of the tax cuts permanent, but a tentative package negotiated with the Senate ran afoul of a presidential veto threat. Still, the effort to reduce the tax load and level of uncertainty for businesses is not dead. The Wall Street Journal quotes Rep. Paul Ryan (R-WI), who will become House Ways and Means Committee chairman when the new Congress convenes in January, as saying that he will work to overhaul the federal tax code, with a focus on cutting the corporate tax rate.

By whatever approach, businesses need a certain element of predictability to plan their strategy and finances for the future, and overarching energy concerns still profit by incentives for use of conservation measures. It has been working, so perhaps we should avoid the impulse to fix it.

Rich Walker, who after 22 years of service to AAMA, announced his retirement from the position of President & CEO.