Once more Congress gives new life to a group of incentives and credits that are routinely renewed for short durations. The Consolidated Appropriations Act, 2021 (the “Act”) is this year’s vehicle for extending the life of a number of tax credits and tax deduction provisions. Many of these provisions expired at the end of 2020. Under the Act a few provisions were made permanent, and the remainder are extended for one to five years.
Clean energy credits and incentives are extended and modified as follows:
- The section 179D energy efficient commercial building deduction is extended permanently, will be inflation indexed and will use updated energy efficiency standards. The Act makes this deduction a permanent part of the tax code and raises the bar for determining energy efficiency; a benefit for those who design, build, and develop commercial buildings.
- The section 45L energy efficient homes credit is extended for one year, through 2021. Home builders will have one additional year to collect credits for incorporating energy savings into residential construction
- The section 48 energy investment credit for solar and other renewables is extended by lengthening the phase-out period and applying higher credit rates than the existing phase-out schedule. Waste energy recovery property is also added as a new category of qualified property.
- The section 45 renewable electricity production tax credit for wind farms and other renewables is extended for one year, through 2021.
- The section 45Q carbon oxide sequestration credit is extended for an additional two years, through 2025.
- Excise tax credits and subsidy payments for alternative fuels are extended one year, through 2021.
- The section 25D residential energy-efficient property credit is extended at the full rate for two years, through 2022 and is then phased down in 2023. Biomass fuel property is also added as eligible for this credit.
- The section 40 second-generation biofuel credit is extended one year, through 2021.
The Act also extended several other important tax credits and incentives. Similar to the energy efficiency credits above, these provisions are generally extended for short periods and then renewed.
Business Incentives and Credits including:
- The New Markets Tax Credit is extended for five years, through 2025. A credit that facilitates financing for business expansion and development in targeted areas.
- The Work Opportunity Tax Credit is extended five years, through 2025. A credit to assist employers in hiring workers from within certain pools.
- Empowerment Zone tax incentives are extended for five years, through 2025.
- The section 45S paid family and medical leave credit is extended for five years, through 2025.
- The Indian employment credit is extended for one year, through 2021.
- The section 45G railroad track maintenance credit is made permanent, but the credit rate is reduced from 50 percent to 40 percent for tax years beginning after 2022.
Please reach out to Ron Wainwright, national leader of our Firm’s Tax Credits and Incentives practice for more information on how these credits and incentives can reduce cash taxes due for your business.
