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Infrastructure bill highlights Dem tax priorities

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Italian motorway, trucks travelling, green hills around The House of Representatives passed a $1.5 trillion infrastructure package on July 1 with an expansive tax title that would extend and enhance green incentives and enact tax credit bond provisions.

The Moving Forward Act (H.R. 2) would spend $500 billion to extend transportation funding for five years, but also represents the Democrats’ opening bid on a broader infrastructure package. It passed the House 233-188, in a largely party-line vote, and is very unlikely to be enacted in its current form. The bill is only partially funded and is estimated to cost $450 billion over 10 years, with its proposed tax incentives amounting to $340 billion. Democratic leaders have expressed an openness to an increase in the gas tax but have urged the administration to lead on the issue. The bill also includes many provisions that may be unpopular with Republicans.

Still, the bill provides a helpful list of Democratic priorities on potential legislation that has had some bipartisan traction in the past. There is bipartisan appetite in Washington for an infrastructure bill, with the administration developing a $1 trillion plan of its own and infrastructure seen by both parties as a way to restart the economy. In addition, Congress is facing a Sept. 30 deadline to reauthorize the Highway Trust Fund, which will force some sort of legislative action. A fourth round of stimulus could also spur negotiations. But finding compromise during an election year may prove difficult, and lawmakers always have the option of a short-term extension of the Highway Trust Fund instead of a broader bipartisan agreement.

The major tax provisions in the House bill include:

  • Expanding and creating many new tax-favored bond programs
  • Creating a 30% tax credit for the operation and maintenance of broadband systems owned by state, local or tribal governments
  • Increasing New Markets Tax Credit (NMTC) allocation and making it permanent
  • Expanding and enhancing the low-income housing tax credit
  • Increasing and enhancing the rehabilitation credit
  • Extending and enhancing the Section 45 production tax credit (PTC)
  • Extending and enhancing the Section 48 investment tax credit (ITC)
  • Extending the Section 45Q tax credit for carbon capture to construction beginning before 2026
  • Extending the $1 per gallon tax credits for biodiesel and biodiesel mixtures through 2022, phasing down gradually through 2025
  • Extending $0.50-per-gallon tax credits for alternative fuels and alternative fuel mixtures through 2022, phasing down gradually through 2025
  • Modifying the nonbusiness energy property credit and extending it, along with the residential energy efficient property credit, through 2025
  • Extending the Section 179D energy-efficient commercial building deduction through to 2025 and increasing it from $1.80 to $3 per square foot
  • Increasing the new energy-efficient home credit to $2,500, extending it through 2025
  • Increasing the phaseout threshold for the Section 30D qualified plug-in electric vehicle credit from 200,000 vehicles per manufacturer to 600,000, at a maximum credit of $7,000 (down from $7,500)
  • Extending the alternative fuel vehicle refueling property credit through 2025 and allowing a 20% credit for electric charging infrastructure expenses exceeding $100,000 beginning in 2021
  • Creating a new credit for previously owned electric vehicles
  • Creating a new manufacturers credit for zero-emission heavy vehicles and buses
  • Extending the Section 48C advanced energy project credit

The following provides more details on several of the key tax provisions.

Tax-preferred bonds The bill would lean heavily on tax-favored bond programs to encourage investment in infrastructure, with changes that include:

  • Recreating the Build American Bonds program
  • Lifting the cap on and enhancing private activity bonds
  • Enhancing qualified small issue bonds
  • Creating bond programs for school infrastructure, zero-emission vehicle infrastructure, and sewage and water supply facilities.

New Markets Tax Credit Congress has allocated $3.5 billion for the credit in 2019 and $5 billion in 2020, after which it is set to expire. The infrastructure legislation would raise the allocation amount to $4 billion for 2019, and $7 billion for 2020. It would then make the credit permanent with a $6 billion allocation for 2021, and $5 billion thereafter, adjusted annually for inflation.

Renewable energy credits The bill would extend both the ITC and the PTC with some enhancements. Currently, construction on PTC projects must generally begin before the end of 2020, and the credit for wind projects is reduced by 40% for projects beginning in 2020. Under the legislation, the credit would be extended for most property types for construction beginning through the end of 2025. Geothermal facilities would only be extended for construction beginning through 2020, and the credit for wind energy would remain reduced by 40% for construction beginning from 2020 to 2025. The election to take the Section 48 ITC in lieu of the Section 45 PTC would also be extended through 2025.

The bill also significantly extends and enhances the ITC. Solar, fuel cell and small wind property are currently eligible for a 26% credit for construction beginning in 2020 and a 22% credit for construction beginning in 2021 (credit is reduced to 10% if construction is not completed before 2024). Only solar property is eligible for a credit thereafter and only at a 10% rate. Combined heat and power, geothermal, and microturbine property are eligible for a 10% credit for construction beginning before the end of 2021, with only geothermal property used to make electricity eligible for a 10% credit thereafter.

The bill would restore the credit to 30% for solar, fuel cell, and small wind property for construction beginning by the end of 2025, with a 26% credit available for construction beginning in 2026 and a 22% credit for construction beginning in 2027 (with the credit reduced to 10% if the property was not completed before 2030). Geothermal property for generating electricity would also be made eligible for this 30% credit with the same phaseout, and the legislation would also expand this 30% credit to include energy storage technology, waste energy recovery property, qualified biogas property and linear generators. The 10% credit for other property types would be extended and made available for construction beginning through the end of 2026.

The bill revives the Section 48C advanced energy project credit, giving Treasury the discretion to allocate up to $2.5 billion per year for the credit from 2021 through 2025. Taxpayers must apply for the credit in advance and qualifying property must be placed into service within four years of the date the credit allocation is made. The bill gives priority to projects if manufacturing is more involved than mere assembly, prevailing wages are paid to workers or they have the greatest potential for commercial deployment of new applications.

Renewable fuel credits Congress recently renewed the tax credits for biofuels and biodiesel mixtures at $1.00 per gallon through 2022 and the tax credits for alternative fuels and alternative fuel mixtures at $0.50 per gallon through 2020. The bill would extend all the credits through 2025 but phases them down gradually. The biodiesel and biodiesel mixture credit decreases to $0.75 per gallon in 2023, $0.50 in 2024, and then $0.33 before expiring at the end of 2025. The alternative fuel and alternative fuel mixture excise tax credit would remain at $0.50 per gallon through 2022, but then decreases to $0.38 in 2023, $0.24 in 2024 and $0.17 before expiring at the end of 2025. The bill also extends the $0.10-per-gallon small agri-biodiesel producer credit through 2025.

Incentives for green buildings and homes The bill would extend the energy-efficient commercial buildings deduction, currently set to expire at the end of 2020, through 2025 and increase the maximum deduction amount from $1.80 per square foot to $3.00 beginning in 2021. Under current law, the maximum deduction amount applies for the building’s entire lifetime. The bill would reduce this cap to three years. It also modifies the energy-cost-reduction requirement from at least 50% compared to the 2007 American Society of Heating, Refrigerating and Air-Conditioning Engineers (ASHRAE) standard to a minimum of 30% compared to the ASHRAE standard at least two years before the date of construction.

The legislation increases the maximum new energy-efficient home credit from $2,000 to $2,500 and extends it for homes acquired through 2025. To be eligible for the credit, a home’s energy expenditures must be at least 15% below the expenditures of a comparable home based on the 2018 International Energy Conservation Code standards.

The legislation also expands the residential energy-efficient property credit, adding battery storage technology and energy efficient biomass fuel property to the list of eligible expenditures. It extends the maximum 30% credit, currently only eligible for property placed in service after Dec. 31, 2016, and before Jan. 1, 2020, through 2025, phasing it down to 26% in 2026 and 22% before it expires at the end of 2027.

Electric vehicle incentives The bill makes a major modification to the credit for electric plug-in vehicles. Currently, the maximum $7,500 credit phases out over four calendar quarters after the quarter in which a manufacturer hits the 200,000 electric vehicle sales mark. The bill raises that threshold to 600,000 vehicles but at a maximum credit rate of $7,000. It also shortens the phase-out period, reducing the credit by 50% for the calendar quarter after the 600,000-vehicle threshold is reached before the credit terminates entirely.

The bill creates a new credit for used electric drive vehicles purchased for personal use. The vehicle must be a model year at least two years prior to the year of sale and be purchased from a dealership for a price up to $25,000. The base credit amount is $1,250 and can rise to $2,500 or 30% of the sale price, whichever is less, depending on battery capacity. The credit begins to phase out for taxpayers with adjusted gross income (AGI) exceeding $30,000 (or $60,000 if married filing jointly) and is completely unavailable for those with AGI exceeding $40,000 or ($70,000 if married filing jointly). It can be claimed only once every three years.

The bill also creates a manufacturer’s credit for zero-emission heavy vehicles and buses. The credit is worth up to 10% of the sale price, capped at $100,000 per sale, and would be available from the date of the bill’s enactment through 2025. To be eligible, the vehicles must be for public use, weigh at least 14,000 pounds and must be operated solely by a battery or a fuel cell powered electric motor.

The bill extends the 30% alternative fuel refueling property credit through 2025 and removes the $100,000 cap on electric charging infrastructure to bypass the current limitation on the credit. Beginning in 2021, electric charging infrastructure would be eligible for an uncapped credit of 20% on any expenses exceeding $100,000 so long as the property is for public use and either accepts credit cards or does not charge a fee, or is for exclusive use by government or commercial vehicle fleets.

Next steps The Moving Forward Act is unlikely to be passed in its entirety, but some of its provisions may be rolled into a compromise on the reauthorization of the Highway Trust Fund, a broader infrastructure package, or even the next round of stimulus legislation. Congress must pass a highway bill but will have little time to negotiate a deal with other pressing priorities and very few working days left before its Sept. 30 deadline. The election will complicate efforts at bipartisanship and lawmakers may merely agree on a short-term extension without addressing broader priorities. Taxpayers should continue to monitor developments but should not rely on any legislative proposal until actually enacted.

For more information contacts:

Dustin Stamper
Managing Director
Washington National Tax Office
+1 202 861 4144

Omair Taher
Senior Associate
Washington National Tax Office
T +1 202 861 4143

To learn more visit gt.com/tax

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