[Download the PDF with a table describing the treatment of every expired provision]
The Senate Finance Committee approved tax legislation on July 21 that would generally extend the 50-plus popular tax provisions that expired at the end of 2014 retroactively from Jan. 1, 2015, through the end of 2016. The bill would also enhance many of the provisions, such as the R&D credit, but includes $1.8 billion in revenue-raising provisions.
The House and Senate are expected to begin negotiating a compromise on the expired provisions after returning from the August recess in September. The House has not moved any legislation to extend all the provisions temporarily, but has instead voted to make just eight provisions permanent. Republican leaders hope to resurrect a failed deal from late last year that would make a handful of provisions permanent and extend the rest for two years. The eight provisions the House voted to make permanent are the following:
- Alternative simplified research credit at an increased rate of 20%
- Increased Section 179 expensing limits
- Reduced five-year holding period for S corporation built-in-gains tax
- Election to deduct state and local sales tax
- Tax-free individual retirement account distributions for taxpayers 70½ years and older
- Increased percentage limits and extended carryforward periods for charitable contributions of conservation easements and capital gain property (with enhancements for Alaska native corporations)
- Enhanced charitable deduction for contributions of food inventory
- S corporation basis reduction limit for charitable gifts
The House R&D credit bill would also allow private companies with less than $50 million in gross receipts to take the credit against the alternative minimum tax (AMT). The Senate version would allow businesses less than five years old with less than $5 million in annual gross receipts to take the credit against AMT and up to $250,000 of the credit against their payroll taxes.
The House has not proposed any revenue-raising provisions, but the Senate legislation would use offsets to cover enhancements to some of the extenders. The Senate bill would raise $1.8 billion by doing the following:
Excluding clean coal power grants from income for noncorporate taxpayers and instead requiring a 1.18% payment to the government
Expanding mortgage interest reporting beginning in 2017 to include loan origination date, outstanding principal and the address of the property
Pegging the excise tax and alternative credit rates for liquefied natural gas (LNG) and liquefied petroleum gas (LPG) to their energy equivalents of gasoline and diesel, resulting in the following:
• LNG excise tax rate cut from 24.3 cents per gallon to 14.1 cents and a cut in the credit rate from 50 cents per
gallon to 29 cents
• LPG (propane) excise rate cut from 18.3 cents per gallon to 13.2 cents and credit rate cut from 50 cents per
gallon to 36 cents
The expansion of mortgage interest reporting and the cuts in the alternative excise tax rates are also included in two draft highway funding bills Congress is currently considering. Taxpayers who use LNG and LPG for off-highway purposes would be hit particularly hard by the cut in the alternative fuel credit rates because they would not benefit from the corresponding cut in the excise tax rate.
Lawmakers stand a reasonable chance of reaching agreement on a deal to make several provisions permanent and extend the rest for two years. Democrats and Republicans came close to a similar agreement last December, but it fell apart after the administration objected that it did not extend enhancements to the earned income and child credit that are scheduled to expire at the end of 2016.
If such a deal proves impossible, lawmakers should be able to agree on at least a two-year retroactive extension of nearly all the provisions, with a one-year extension as an absolute fallback. As in past years, negotiations could drag into December. The following table compares how the expired tax provisions would be treated under the Senate markup and the House bills. The Senate Finance Committee’s enhancements to certain provisions may be the least likely to be included in a final deal. Many similar changes were proposed last year but were excluded in the one-year extension ultimately enacted.
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