Tax Extenders Package Includes Key NAHB Priorities

465261845This post was updated on Dec. 20.

President Obama has signed into law a $622 billion tax package that permanently renews certain NAHB housing tax priorities while providing a two-year retroactive renewal for others through the end of tax year 2016.

Congress regularly acts annually to extend scores of temporary tax provisions known as tax extenders that are often renewed for only one or two years at a time. This legislation would make many temporary provisions permanent.

The tax extenders package includes these key housing provisions:

Major Victory

  • Low Income Housing Tax Credit. The bill permanently sets the credit rate at 9% for housing credits used for financing new construction and substantial rehabilitation. When credit rates decline, less equity is available for developments, so keeping a permanent minimum 9% floor on federal housing credits is a significant victory for affordable housing. This will provide all developers with much-needed certainty when planning future projects. NAHB has been working for years to make the 9% minimum credit rate floor permanent.

Big Wins

  • Section 179 Expensing. The tax package permanently extends the small business expensing limitation and phase-out amounts for Section 179. Current law allows small business to immediately write off $25,000 of qualifying property, which is phased out for total investments above $200,000. The bill increases this  limit to $500,000 for qualified property with a $2 million phase-out and indexes both for inflation.
  • Residential Energy Efficiency Tax Credit (25D). This program offers a 30% tax credit for the installation of solar panels, wind turbines, geothermal heat pumps and fuel cells in new or existing homes. The credit is also uncapped, so all qualifying expenses may be claimed. Under prior law, the credit expires at the end of 2016. The bill will extend but phase out just the credit for solar starting in 2020, when the credit will fall to 26%, dropping to 22% in 2021, before expiring in 2022.

Wins

  • Credit for Energy-Efficient New Homes (45L). This provides builders a $2,000 tax credit for exceeding energy standards by 50%. The base energy code is the 2006 International Energy Conservation Code plus supplements. The 45L tax credit is extended through 2016 and can be claimed by both for-sale and for-rent homes of three stories or less, providing the developer has a tax basis in the property at the time of development. Section 45L is expected to save home builders $361 million for tax year 2015.
  • Credit for Non-business Energy Property (25C): This provision extends through 2016 the 25C tax credit, which provides a credit up to $500 for consumers installing qualified energy-efficient upgrades. The provision updates the baseline for qualifying components. Section 25C is expected to save home owners who remodel $826 million for tax year 2015.
  • Bonus Depreciation. Originally intended as a short-term stimulus item, the bill extends but phases out the bonus depreciation for property acquired and placed in service during 2015 through 2019. The bonus depreciation percentage is 50% for property placed in service in 2015, 2016 and 2017, dropping to 40% in 2018 and 30% in 2019. Bonus depreciation applies to qualified property with a recovery period of 20 years or less.
  • Mortgage Insurance Premiums. This provision allows taxpayers, subject to an income cap beginning at $100,000, to deduct premiums paid for private mortgage insurance and FHA/RHA/VA insurance premiums. The deduction of mortgage insurance premiums is extended through 2016 and is expected to save home owners $1.3 billion for tax year 2015.
  • Mortgage Debt Forgiveness. This provision would eliminate any taxes home owners might face when renegotiating the terms of a home loan when banks forgive a portion of the outstanding mortgage, particularly in connection with short sales. This applies only to principal residences and through the 2016 calendar year. The exclusion is also modified to debt discharged in 2017 if the discharge is pursuant to a written agreement entered into in 2016. This extension is expected to save home owners $3.3 billion for tax year 2015.
  • Deduction for Energy-Efficient Commercial Buildings (179D). This provision extends through 2016 a deduction up to $1.80 per square foot for commercial buildings, including multifamily buildings built under the commercial code that meet the baseline ASHRAE 2007 standard.

View this Eye on Housing blog post for more details. For more information, contact J.P. Delmore at 800-368-5242 x8412 or Robert Dietz at  x8285.

NAHB provides this information for general guidance only. This information does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind nor should it be construed as such. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action on this information, you should consult a qualified professional adviser to whom you have provided all of the facts applicable to your particular situation or question. None of this tax information is intended to be used nor can it be used by any taxpayer, for the purpose of avoiding penalties that may be imposed on the taxpayer. The information is provided “as is,” with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.

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  1. Scott Sedam says:

    … meanwhile everyone complains aboutr the incredible complexity of the tax code and how special interests spend a fortune lobbying members of Congress to get their pet projects funded through tax code manipulation. Multiply what you read by 1,000 industries and interest groups and that’s what we get … a huge, virtually undecipherable mess. Gives me a brain-ache. I am ready for a (perhaps slightly modified) flat tax.

  2. Bob Whitten says:

    Nice thought Scott, but a flat tax will never happen as long as the legislative branch of the government relies so heavily on the AICPA for advice on tax code changes! Talk about a vested interest group. Over 50% of their gross revenues are typically tied to tax preparation and consulting to assist clients sort out that “undecipherable” mess. I do like the way you think though!!!! Interested in running for President? Everybody else seems to be.

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