Business tax extensions

The Protecting Americans from Tax Hikes Act of 2015, which President Barack Obama signed into law Dec. 18, did not permanently extend all business tax provisions, but some received a healthy five-year extension through 2019.

In this second part of a two-part column, I’ll discuss the extensions:

n Bonus depreciation. Taxpayers can once again elect to take additional first-year (bonus) depreciation on qualifying asset purchases through Dec. 31, 2019. The bonus depreciation percentage, however, decreases in the later years as follows: 50 percent for qualified assets placed in service in 2015, 2016 and 2017, 40 percent in 2018 and 30 percent in 2019.

As in previous iterations of the provision, qualifying assets generally include new tangible personal property, off-the-shelf computer software and qualified leasehold improvements. Qualified restaurant or retail property do not qualify for bonus depreciation, unless the property also meets the definition of qualified leasehold improvements. PATHA also reinstates the corresponding election to accelerate AMT credits in lieu of claiming bonus depreciation, increasing the amount of AMT credits that can be claimed beginning in 2016.

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n Work-opportunity tax credit. The WOTC gives employers incentive to hire workers in certain groups that have a high rate of unemployment. While it can vary by targeted group and number of hours worked, the credit generally is equal to 40 percent of the eligible employee’s wages up to $6,000 (a $2,400 credit).

In addition to extending the WOTC through 2019, PATHA also expands the targeted groups by adding qualified individuals who have been unemployed for 27 weeks or more.

Other business provisions extended through 2019 include the new-markets tax credit and the look-through treatment for certain payments between related controlled foreign corporations.

Some of the narrower or less popular business provisions were extended through 2016. Though the long-term prospects for these provisions are unclear, the multiyear extension at least gives taxpayers that can benefit from the provisions the opportunity to do so. Business provisions extended through 2016 include the energy-efficient commercial buildings deduction, several other energy incentives, and several incentives targeted at specific industries.

Here are some of the other business and energy provisions made permanent or extended under PATHA.

Permanent:

n R&D tax credit.

n Section 179 $500,000 expensing election.

n Fifteen-year depreciation for qualified leasehold, retail improvement and restaurant property.

n One-hundred percent exclusion of gain from sale of qualified small-business stock.

n Reduction from 10 to five years, the recognition period for built-in gains of S corporations.

n Basis adjustment to stock of S corporations making charitable contributions of appreciated property.

n Enhanced charitable deduction for contributions of food inventory.

n Subpart F exception for active financing income.

Provisions extended through 2019:

n New-markets tax credit.

n Look-through treatment for certain payments between related CFCs.

n Energy-efficient commercial building deduction.

n Five-hundred dollar credit for nonbusiness energy property.

n Credit for energy-efficient new homes. •

Michael Corrente is a managing director in the Tax Group at CBIZ Tofias, which has offices nationwide, including Providence and Boston.

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