COVID-19 AID PACKAGE INCLUDES TAX EXTENDERS

22 December 2020

The Taxpayer Certainty and Disaster Tax Relief Act of 2020 (TCDTR or the Act), part of the Consolidated Appropriations Act of 2021, contains numerous tax extenders.
Background. The Code contains dozens of temporary tax provisions, i.e., provisions with a fixed termination date.
Often, these expiring provisions are temporarily extended for a short period of time (e.g., one or two years).
Reduction in Medical Expense Deduction Floor
Under pre-Act law, for tax years beginning before Jan. 1, 2021, individuals could claim an itemized deduction for unreimbursed medical expenses to the extent that such expenses exceeded 7.5% of AGI.
New law. The Act makes the 7.5% threshold permanent, applicable for tax years beginning after Dec. 31, 2020. (Code Sec. 213(a), as amended by Act Sec. 101)
Energy Eefficient Commercial Buildings Deduction
Under pre-Act law, for property placed into service before Jan. 2021, taxpayers could claim 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, including the interior lighting systems, the heating, cooling, ventilation, and hot water systems, and the building envelope.
New law. The Act makes this deduction permanent. (Code Sec. 179D, as amended by Act Sec. 102(a)) The Act also added an inflation adjustment for tax years beginning after 2020 (Code Sec. 179D(g), added by Act Sec. 102(b)) and amended the standards set out in Code Sec. 179D(c). (Act Sec. 102(c))
Benefits Provided to Volunteer Firefighters and Emergency Medical Responders
Under pre-Act law, for tax years beginning in 2020, for any member of a “qualified volunteer emergency response organization,” gross income didn’t include any “qualified state and local tax benefit” (i.e., certain state or local tax relief provided for performing volunteer emergency response services) or any “qualified payment” (i.e., payments provided by state or local governments on account of performing volunteer emergency response services).
New law. The Act makes this exclusion permanent, applicable for tax years beginning after Dec. 31, 2020. (Code Sec. 139B, as amended by Act Sec. 103)
Transition from Deduction for Qualified Tuition and Related Expenses to Increased Income Limitation on Lifetime Learning Credit
The Code Sec. 25A education credit is the sum of:
i. The American opportunity tax credit (AOTC) and the Lifetime Learning credit.
Under pre-Act law, different phaseout rules applied for the AOTC and the Lifetime Learning credit. (Code Sec. 25A(d))
Also under pre-Act law, Code Sec. 222 allowed a “higher education expense deduction” for qualified tuition and related expenses paid during the year.
New law. The Act removes the different phaseout rules for the AOTC and Lifetime Learning Credit and replaces them with a single phaseout, effective for tax years beginning after Dec. 31, 2020. (Code Sec. 25A(d)(1), as amended by Act Sec. 104(a))
The Act also repeals Code Sec. 222 for tax years beginning after Dec. 31, 2020. (Act Sec. 104(b), 104(c))
Railroad Track Maintenance Credit
Under pre-Act law, for expenditures paid before Jan. 1, 2023, a 50% credit (the RTMC) is available for qualified railroad track maintenance expenditures paid or incurred during the tax year. The credit is allowed to Class II and Class III railroads and certain assignees of miles of track (“eligible taxpayers”). The total RTMC for an eligible taxpayer is subject to a limitation based on its total miles of track.
New law. The Act makes the railroad track maintenance credit permanent, for tax years ending after the date of the Act’s enactment. (Code Sec. 45G, as amended by Act Sec. 105(a))
The Act also reduces the 50% credit rate to 40% for tax years beginning after Dec. 31, 2022. (Code Sec. 45G(a), as modified by Act Sec. 105(b))
Look-Thru Rule for Related Controlled Foreign Corporations
Under pre-Act law, for tax years of foreign corporations beginning before Jan. 1, 2021, dividends, interest, rent, and royalties received or accrued from a controlled foreign corporation (CFC) that’s a related person isn’t treated as foreign personal holding company income (FPHCI) to the extent attributable or properly allocable to income of the related person that isn’t subpart F income or income treated as effectively connected with the conduct of a U.S. trade or business (ECI).
New law. The Act extends the look-thru rule for related CFCs through 2025. (Code Sec. 954(c)(6)(C), amended by Act Sec. 111(a))
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% 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.
Under pre-Act law, a $5 billion allocation was made for 2020, with no allocation thereafter.
New law. The Act extends the $5 billion New Markets Tax Credit allocation for each calendar year from 2020 through 2025. (Code Sec. 45D(f)(1)(H), amended by Act Sec. 112(a)) The Act also extends by five years, through 2030, the carryover period for unused New Markets Tax Credits. (Code Sec. 45D(f)(3), as amended by Act Sec. 112(b))
Work Opporunity 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. Under pre-Act law, the credit, which is based on qualified first-year wages paid to the hire, applied to hires before Jan. 1, 2021.
New law. The Act extends the credit through 2025. (Code Sec. 51(c)(4), as amended by Act Sec. 113) The amendment applies to individuals who begin work for the employer after Dec. 31, 2020.
Exclusion from Gross Income of Discharge of Qualified Principal Residence Indebtedness and Reduction in Maximum Indebtedness Limits
Under pre-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, 2021, excluded from gross income. (Code Sec. 108(a)(1)(E)) The exclusion also applied to qualified principal residence indebtedness discharged pursuant to a binding written agreement entered into before Jan. 1, 2021. (Code Sec. 108(h)(2))
New law. The Act extends this exclusion to discharges of indebtedness before Jan. 1, 2026. (Code Sec. 108(a)(1)(E), as amended by Act Sec. 114(a))
The Act also reduces the above maximum acquisition indebtedness limits to $750,000 and $375,000, respectively.
7-year Recovery Period for Motorsports Entertainment Complexes
Under pre-Act law, a 7-year recovery period applied to motorsports entertainment complexes placed in service before Jan. 1, 2021. A motorsports entertainment complex is defined as a racing track facility that is permanently situated on land and that hosts one or more racing events within 36 months of the month it is placed in service.
New law. The Act extends the 7-year recovery period through 2025, applicable to property placed into service after Dec. 31, 2020. (Code Sec. 168(i)(15)(D), as amended by Act Sec. 115)
Extension of Expensing Rules for Certain Productions
Under pre-Act law, taxpayers could claim a deduction for qualified film, television, and theatrical productions beginning before Jan. 1, 2021, 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.
New law. The Act extends this deduction through 2025, for productions commencing after Dec. 31, 2020. (Code Sec. 181(g), as amended by Act Sec. 116)
Oil spill liability trust fund rate
The Code imposes an excise tax of $0.09 per barrel on crude oil received at a refinery and petroleum products entered into the United States and deposited into the Oil Spill Liability Trust Fund.
New law. The Act extends this excise tax through 2025, effective beginning on Jan. 1, 2021. (Code Sec. 4611(f)(2), as amended by Act Sec. 117)
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: the 20% wage credit under Code Sec. 1396; liberalized Code Sec. 179 expensing rules ($35,000 extra expensing and the break allowing only 50% of expensing eligible property to be counted for purposes of the investment-based phaseout of expensing); tax-exempt bond financing under Code Sec. 1394; and deferral under Code Sec. 1397B of capital gains tax on sale of qualified assets sold and replaced.
Under pre-Act law, Empowerment Zone designations expire on Dec. 31, 2020.
New law. The Act extends through Dec. 31, 2025, the period for which the designation of an empowerment zone is in effect. (Code Sec. 1391(d)(1)(A)(i), as amended by Act Sec. 118(a))
The Act also provides that Code Sec. 1397A’s enhanced expensing rules will not apply to any property placed in service in tax years beginning after Dec. 31, 2020 (Code Sec. 1397A(c), added by Act Sec. 118(b); and that Code Sec. 1397B will not apply to sales in tax years beginning after Dec. 31, 2020. (Code Sec. 1397B(c), as added by Act Sec. 118(c)
The Act also provides that where a nomination of an empowerment zone included a termination date of Dec. 31, 2020, termination will not apply with respect to the designation if, after the date of the Act’s enactment, 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, 2020. (Act Sec. 118(b)
Employer Credit for Paid Family and Medical Leave
Under pre-Act law, for tax years beginning before Jan. 1, 2021, 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% of eligible wages if the rate of payment is 50% of such wages and is increased by 0.25 percentage points (but not above 25%) for each percentage point that the rate of payment exceeds 50%. 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.
New law. The Act extends this credit through 2025, applying to wages paid in tax years beginning after Dec. 31, 2020. (Code Sec. 45S(i), as amended by Act Sec. 119)
Exclusion for Certain Employer Payments of Student Loans
Under Code Sec. 127, educational assistance provided under an employer’s qualified educational assistance program, up to an annual maximum of $5,250, is excluded from the employees income.
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act, PL 116-136, 3/27/2020) added to the educational payments excluded from an employee gross income, “eligible student loan repayments” (below) made after Mar. 27, 2020, and before Jan. 1, 2021. These payments are subject to the overall $5,250 per employee limit for all educational payments. Eligible student loan repayments are payments by the employer, whether paid to the employee or a lender, of principle or interest on any qualified higher education loan as defined in Code Sec. 221(d)(1) for the education of the employee (but not of a spouse or dependent). (Code Sec. 127(c)(1)(B))
New law. The Act extends the exclusion for loan repayments through 2025. (Code Sec. 127(c)(1)(B), amended by Act Sec. 120)
Carbon Oxide Sequestration Credit
Code Sec. 45Q(a)(1) allows a credit of $20 per metric ton of qualified carbon oxide
i. Sequestered by the taxpayer using carbon capture equipment which is originally placed in service at a qualified facility before Feb. 9, 2018,
ii. Disposed of by the taxpayer in secure geological storage, and
iii. Not utilized by the taxpayer as a tertiary injectant in a qualified enhanced oil or natural gas recovery project.
A “qualified facility” must satisfy a number of requirements, including, under pre-Act law, that its construction begins before Jan. 1, 2024.
New law. The Act extends the beginning-of-construction date for certain qualified facilities to before Jan. 1, 2026. (Code Sec. 45Q(d)(1), amended by Act Sec. 121)
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-Act law, qualifying facilities generating electricity using closed-loop biomass, open-loop biomass, geothermal energy, land fill 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, 2021, to claim the credit.
New law. The Act extends the date by which construction of a qualifying facility must begin, to before Jan. 1, 2022, for the following facilities: wind facilities, qualifying closed-loop biomass, open-loop biomass, geothermal energy, land fill gas and trash, qualified hydropower, and marine and hydrokinetic renewable energy facilities. (Code Sec. 45(d)(1), Code Sec. 45(d)(2)(A), Code Sec. 45(d)(3)(A), Code Sec. 45(d)(4)(B), Code Sec. 45(d)(6), Code Sec. 45(d)(7), Code Sec. 45(d)(9), and Code Sec. 45(d)(11)(B), as amended by Act Sec. 131(a))
In addition, the 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, 2022. (Code Sec. 48(a)(5)(C), as amended by Act Sec. 127(c)(2)(B)) The Act also makes conforming amendments in Code Sec. 45(b)(5)(D) and Code Sec. 48(a)(5)(E), extending the Jan. 1, 2021 dates to Jan. 1, 2022.
Extension and Phaseout of Energy Credit
Background—Increased credit for non-fiber-optic solar energy property; phaseout of the increased credit. Under Code Sec. 48(a)(2)(A)(i)(II) before amendment by the Act, an increased credit was provided for business solar energy property described in Code Sec. 48(a)(3)(A)(i), the construction of which began before 2022.
Under a phaseout of the increased credit for solar property, the energy percentages were as follows: for property the construction of which began after 2019 and before 2021 (Code Sec. 48(a)(6)(A)(i) before amendment by the Act), and that was placed in service before 2024 (Code Sec. 48(a)(6)(B) before amendment by the Act)-26%; for property the construction of which began after 2020, and before 2022 (Code Sec. 48(a)(6)(A)(ii) before amendment by the Act), and that was placed in service before 2024 (Code Sec. 48(a)(6)(B) before amendment by the Act)-22%.
A similar phaseout applied for fiber-optic solar, qualified fuel cell, and qualified small wind energy property, under Code Sec. 48(a)(7) before amendment by the Act.
Background—Beginning-of-construction date for certain energy property. To qualify for the Code Sec. 48(a) business energy credit, the following types of property had to begin construction before 2022: fiber optic solar lighting system property, geothermal heat pump property, qualified fuel cell and stationary microturbine power plant property, combined heat and power property, and small wind property (Code Sec. 48(a)(3)(A)(ii) before amendment by the Act, Code Sec. 48(a)(3)(A)(vii) before amendment by the Act, Code Sec. 48(c)(1)(D) before amendment by the Act, Code Sec. 48(c)(2)(D) before amendment by the Act, Code Sec. 48(c)(3)(A)(iv) before amendment by the Act, and Code Sec. 48(c)(4)(C) before amendment by the Act)
New law. Increased credit for non-fiber-optic solar energy property; phaseout of the increased credit. Under the Act, an increased credit is provided for business solar energy property described in Code Sec. 48(a)(3)(A)(i), the construction of which begins before 2024. (Act Sec. 132(a)(1)(A), amending Code Sec. 48(a)(2)(A)(i)(II))
Under the Act, the phaseout energy percentages are as follows, for solar property, and for fiber-optic solar, qualified fuel cell, and qualified small wind energy property: for property the construction of which begins after 2019 and before 2023 (Act Sec. 132(b)(1)(A)(2), amending Code Sec. 48(a)(6)(A)(i); Act Sec. 132(b)(2)(A), amending Code Sec. 48(a)(7)), and that is placed in service before 2026 (Act Sec. 132(b)(1)(B), amending Code Sec. 48(a)(6)(B); Act Sec. 132(b)(2)(A), amending Code Sec. 48(a)(7))-26%; for property the construction of which begins after 2022 and before 2024 (Act Sec. 132(b)(1)(A)(3), amending Code Sec. 48(a)(6)(A)(ii); Act Sec. 132(b)(2)(A), amending Code Sec. 48(a)(7)), and that is placed in service before 2026 (Act Sec. 132(b)(1)(B), amending Code Sec. 48(a)(6)(B); Act Sec. 132(b)(2)(A), amending Code Sec. 48(a)(7))-22%.
Beginning-of-construction date for certain energy property. Under the Act, to qualify for the Code Sec. 48(a) business energy credit, the types of property listed above (fiber optic solar lighting system property, etc.) must begin construction before 2024. (Act Sec. 132(a)(1)(B)(i), amending Code Sec. 48(a)(3)(A)(ii); Act Sec. 132(a)(1)(B)(ii), amending Code Sec. 48(a)(3)(A)(vii); Act Sec. 132(a)(2)(A), amending Code Sec. 48(c)(1)(D); Act Sec. 132(a)(2)(B), amending Code Sec. 48(c)(2)(D); Act Sec. 132(a)(2)(C), amending Code Sec. 48(c)(3)(A)(iv); and Act Sec. 132(a)(2)(D), amending Code Sec. 48(c)(4)(C))
Effective date. Takes effect on Jan. 1, 2020. (Act Sec. 132(c))
Treatment of mortgage insurance premiums as qualified residence interest
Under pre-Act law, mortgage insurance premiums paid or accrued before Jan. 1, 2021 by a taxpayer in connection with acquisition indebtedness with respect to the taxpayer’s qualified residence were treated as deductible qualified residence interest, 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% 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 wasn’t allowed if the taxpayer’s AGI exceeded $110,000 ($55,000 in the case of married individual filing a separate return).
New Law. The Act extends this treatment through 2021 for amounts paid or incurred after Dec. 31, 2020. (Code Sec. 163(h)(3)(E)(iv)(I), as amended by Act Sec. 133)
Credit for Health Insurance Costs of Eligible Individuals
The Code provides a refundable credit (commonly referred to as the health coverage tax credit or “HCTC”) equal to 72.5% of the premiums paid by certain individuals for coverage of the individual and qualifying family members under qualified health insurance.
New law. The Act extends this credit by one year, through 2022, applicable to months beginning after Dec. 31, 2020. (Code Sec. 35(b)(1)(B), amended by Act Sec. 134)
Indian Employment Credit
The Code provides a credit on the first $20,000 of qualified wages and qualified employee health insurance costs paid to or incurred by the employer with respect to each qualified employee who works on an Indian reservation. Generally, a qualified employee is someone who is an enrolled member of an Indian tribe or the spouse of an enrolled member; who performs substantially all of the services for the employer within an Indian reservation; and whose principal place of abode is on or near the reservation in which the services are performed. The credit is equal to 20% of the excess of eligible employee qualified wages and health insurance costs incurred during the current year over the amount of such wages and costs incurred by the employer during 1993.
Under pre-Act law, the credit didn’t apply for any tax year beginning after Dec. 31, 2020.
New law. The Act extends this credit by one year, through Dec. 31, 2021, applicable to tax years beginning after Dec. 31, 2020. (Code Sec. 45A(f), amended by Act Sec. 135)
Mine Rescue Team Training Credit
The Code provides employers a credit equal to the lesser of 20% of the training program costs incurred, or $10,000, with respect to the training program costs of each qualified mine rescue team employee. Under pre-Act law, the credit didn’t apply for any tax year beginning after Dec. 31, 2020.
New law. The Act extends this credit by one year, through Dec. 31, 2021, applicable to tax years beginning after Dec. 31, 2020. (Code Sec. 45N(e), amended by Act Sec. 136)
Classification of Certain Race Horses as 3-year Property
Under pre-Act law, a 3-year recovery period applied for race horses two years old or younger placed in service before Jan. 1, 2021.
New law. The Act extends the 3-year recovery period to race horses two years old or younger placed in service before Jan. 1, 2022. (Code Sec. 168(e)(3)(A)(i), as amended by Act Sec. 137)
Accelerated depreciation for business property on Indian reservation
Under pre-Act law, the Code provided accelerated depreciation for qualified Indian reservation property placed in service before Jan. 1, 2021. To qualify, property must be predominantly used for business purposes within a reservation, owned by someone unrelated to previous owner, and unrelated to gaming practices. The depreciation deduction allowed also extends to the alternative minimum tax.
New law. The Act extends the use of this accelerated depreciation through 2021, applicable to property placed into service after Dec. 31, 2020. (Code Sec. 168(j)(9), as amended by Act Sec. 138)
American Samoa Economic Development Credit
There is provided a credit to certain corporations in American Samoa that may be claimed against U.S. corporate income tax in an amount equal to the sum of certain percentages of a domestic corporation’s employee wages, employee fringe benefit expenses, and tangible property depreciation allowances for the tax year in respect of the active conduct of a trade or business in American Samoa.
New law. The Act extends this credit through 2022. (Sec. 119 of Div A of the Tax Relief and Health Care Act of 2006, as amended by Act Sec. 139) The Act also changes “first 15 taxable years” to “first 16 taxable years” in paragraph (1), and “first 9 taxable years” to “first 10 taxable years” in paragraph (2).
Second Generation Biofuel Producer Credit
A producer of qualified biofuel produced after Dec. 31, 2008 can claim a credit, as part of the alcohol fuel credit, for each gallon of “qualified second generation biofuel production.” The credit was equal to the “applicable amount” ($1.01) for each gallon of qualified second generation biofuel production. Under pre-Act law, this credit didn’t apply to second generation biofuel produced after Dec. 31, 2020.
New law. The Act extends this deduction through 2021. (Code Sec. 40(b)(6)(J)(i), amended by Act Sec. 140)
Nonbusiness Energy Property
The Code provides a credit for purchases of nonbusiness energy property. The Code allows a credit of 10% 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.
New law. The Act extends this credit through 2021, for property placed in service after Dec. 31, 2020. (Code Sec. 25C(g)(2), amended by Act Sec. 141)
Qualified Fuel Cell Refueling Property Credit
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.
New Law. The Act extends this credit through 2021. (Code Sec. 30B(k)(1), as amended by Act Sec. 142)
Alternative Fuel Refueling Property Credit
Under pre-Act law, for property placed in service before Jan. 1, 2021, a taxpayer could claim a 30% 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).
New law. The Act extends this credit so that it applies to property placed in service before Jan. 1, 2022. (Code Sec. 30C(g), amended by Act Sec. 143)
2-Wheeled Plug-in Electric Vehicle Credit
The Code provides a 10% credit for highway-capable, two-wheeled plug-in electric vehicles (capped at $2,500). Battery capacity within the vehicles must be greater than or equal to 2.5 kilowatt-hours.
New law. The Act extends this credit so that it applies to vehicles acquired before Jan. 1, 2022. (Code Sec. 30D(g)(3)(E)(ii), amended by Act Sec. 144)
Production Credit for Indian Coal Facilities
Under pre-Act law, a credit based on the production of Indian coal was available to producers of Indian coal at Indian coal facilities during the 15-year period beginning on Jan. 1, 2006.
New Law. The Act extends this credit by one year, amending Code Sec. 45(e)(10)(A) by striking “15-year period” and replacing it with “16-year period.”
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.
New law. The Act extends the credit for energy-efficient new homes by one year, to homes acquired before Jan. 1, 2022. (Code Sec. 45L(g), as amended by Act Sec. 146)
Extension of Excise Tax Credits Relating to Alternative Fuels
A 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.
New law. The Act extends these incentives through 2021. (Code Sec. 6426(d)(5) and Code Sec. 6426(e)(3), amended by Act Sec. 147(a)
The Act also extends the termination date in Code Sec. 6427(e)(6)(C) to Dec. 31, 2021. (Act Sec. 147(b)
Residential energy-efficient property credit extended, bio-mass fuel property expenditures included
Under pre-Act law, individual taxpayers were allowed a personal tax credit, known as the residential energy efficient property (REEP) credit, equal to the applicable percentages of expenditures for qualified solar electric property, qualified solar water heating property, qualified fuel cell property, qualified small wind energy property, and qualified geothermal heat pump property. (Code Sec. 25D(a))
Under a phasedown provision, the REEP applicable percentage was 30% for property placed in service after Dec. 31, 2016, and before Jan. 1, 2020, 26% for property placed in service after Dec. 31, 2019, and before Jan. 1, 2021, and 22% for property placed in service after Dec. 31, 2020, and before Jan. 1, 2022 (Code Sec. 25D(g)). The REEP credit did not apply to property placed in service after Dec. 31, 2021. (Code Sec. 25D(h))
New law. For property placed in service after Dec. 31, 2020, the Act extends the phasedown of the credit by two years by providing that the 26% rate applies to property placed in service before Jan. 1, 2023, and the 22% rate applies to property placed in service after Dec. 31, 2022, and before Jan. 1, 2024. (Code Sec. 25D(g), as amended by Act Sec. 148(a)). Therefore, the REEP credit will no longer apply for property placed in service after Dec. 31, 2023. (Code Sec. 25D(h), as amended by Act Sec. 148(a))
In addition, as to expenditures paid or incurred in tax years beginning after Dec. 31, 2020, the Act adds qualified biomass fuel property expenditures to the list of expenditures qualifying for the credit (Code Sec. 25D(a), as amended by Act Sec. 148(b)(1)). A qualified biomass fuel property expenditure is an expenditure for property
i. Which uses the burning of bio-mass fuel (i.e., any plant-derived fuel available on a renewable or recurring basis) to heat a dwelling unit located in the U.S. and used as a residence by the taxpayer, or to heat water for use in the dwelling unit, and
ii. Which has a thermal efficiency rating of at least 75% (measured by the higher heating value of the fuel).
(Code Sec. 25D(d)(6), as amended by Act Sec. 148(b)(2))
Black Lung Liability trust fund excise tax
The Code imposes an excise tax of $1.10 per ton for coal from underground mines and $0.55 per ton for coal from surface mines, each up to 4.4% the sale price effective beginning on the first day of the first calendar month after date of enactment. Under pre-Act law, these excise taxes were scheduled to terminate on Dec. 31, 2020.