Outlook Gloomy for Tax Extenders, Including Energy Incentives

Filed in Capitol Hill, Economics by on December 1, 2016 0 Comments

Mortgage Interest DeductionA number of temporary tax provisions, or tax extenders, are set to expire this month, and it appears unlikely that Congress will renew them.

They include energy tax incentives used by builders, as well as home owner tax benefits including the deduction for mortgage insurance premiums.

All year, House Republicans were steadfast in their opposition to extending these tax provisions, but the Senate had signaled interest in extending some or all of them. Donald Trump’s victory changed that, with the tax writing committees now focusing entirely on moving tax reform in 2017.

Notably, Senate Finance Committee Chairman Orrin Hatch (R-Utah) has now said he is reluctant to push for any further extension.

Renewing this package of tax extenders had become a regular and dependable political event, but recent political developments have altered the political calculation.

Last year, Congress made a number of key tax extenders permanent: small business section 179 expensing limits, the 9% fixed credit rate for low-income housing tax credits, the R&D tax credit, and deductibility for state and local sales taxes.

Combined with an earlier bill that made a permanent fix to the AMT rules, making the most visible tax extenders permanent changed the dynamic regarding future extension efforts by removing much of the political impetus.

Despite these hurdles, NAHB continues to explore opportunities to extend the provisions and is meeting with lawmakers to push for action.

The following tax provisions will expire after Dec. 31:

  • Deduction for Mortgage Insurance. 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.
  • Section 45L Tax Credit for Energy Efficient New Homes. Provides builders a $2,000 tax credit for the construction of homes exceeding heating and cooling energy standards by 50%. The base energy code is the 2006 International Energy Conservation Code plus supplements. Builders must have tax basis in the home to claim the credit (i.e., they must own and then sell/lease the residence).
  • Section 25C Tax Credit for Qualified Energy Efficiency ImprovementsThis policy offers a credit worth up to $500 (subject to a $500 lifetime cap), with lower caps for certain products like windows, for consumers to install qualified energy-efficient upgrades.
  • Section 25D Tax Credit for Power Production Property (partial expiration). 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. Starting Jan. 1, this credit will only be available for solar, and will remain in effect through 2021, although under a new phase-out regime. The 30% credit becomes a 26% credit in 2020, a 22% credit in 2021, and then expires.
  • Mortgage Forgiveness Tax Relief. The provision eliminates any taxes home owners might face due to renegotiating the terms of a home loan, which result in forgiving or canceling a portion of the outstanding mortgage, particularly in connection with short sales. It applies only to principal residences and is extended for 2015 and 2016. The exclusion is also modified to debt discharged in 2017 if the discharge is pursuant to a written agreement entered into in 2016.
  • Section 179D Energy Efficient Commercial Buildings Deduction. Provides a deduction up to $1.80 per square foot for commercial and multifamily buildings that exceed specific energy efficiency requirements under ASHRAE 2007.

For additional information, contact J.P. Delmore at 800-368-5242 x8412.

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