Tag: american taxpayer relief act

A Brief Explanation of the American Taxpayer Relief Act of 2012

The National Law Review recently published an article by Joseph W. Zitzka Jr. and Amanda Wilson of Lowndes, Drosdick, Doster, Kantor & Reed, P.A. regarding The American Taxpayer Relief Act of 2012:

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In the past few weeks, attention has focused on Washington and how the politicians would deal with the tax component of the so-called fiscal cliff (the tax increases that would automatically go into effect on January 1).  On January 1, 2013 Congress passed the American Taxpayer Relief Act of 2012 (the “Act”), and President Obama signed the Act into law on January 2.  Politicians have stated that the Act was designed to keep America from going over the fiscal cliff.  But what does that mean?  As explained below, the Act did reduce the number of tax increases that would go into effect, but unfortunately, many other tax increases still went into effect.

What Did the Act Address?

The main component of the looming tax increases was the expiration of the tax cuts introduced under President Bush.  The rates for all federal ordinary income tax brackets were set to return to 2003 rates, which would increase the tax rates across all brackets (generally, by 3 to 5%).  The Act changed this result, keeping the Bush era tax rates in place for all taxpayers except for those over a certain high-income threshold.  This threshold (the “Act Threshold”) is $450,000 for joint filers, $400,000 for single filers, and $225,000 for married taxpayers filing separately.  Taxpayers with income over the Act Threshold will be subject to tax at a maximum rate of 39.6%.

Additionally, the Bush tax cuts generally lowered the tax rate on capital gains to 15% and provided that qualified dividends would be taxed at a preferential 15% rate (instead of at ordinary income rates).  On January 1, capital gains rates were set to increase to 20% and dividends were set to be taxed at ordinary income rates.  The Act stopped these increases for taxpayers below the Act Threshold.  For taxpayers with income over the Act Threshold, capital gains and dividends will generally be taxed at an increased rate of 20% (which, for dividends, is better than the anticipated increase to ordinary income rates).

The Act has also increased tax liability for higher income taxpayers by reimplementing exemption and deduction phaseouts.  The threshold amount for these phaseouts (“Phaseout Threshold”) is $300,000 for joint filers, $250,000 for single filers, and $150,000 for married taxpayers filing separately.  Taxpayers with adjusted gross income above the Phaseout Threshold will be limited in the personal exemptions that they can claim, as their personal exemption amount will be reduced by 2% for each $2,500 by which the taxpayer’s adjusted gross income exceeds the applicable Phaseout Threshold.  In addition, these same taxpayers will be limited in the amount of itemized deductions that they can claim.  The amount of itemized deductions that can be deducted will be reduced by 3% of the amount by which the taxpayer’s adjusted gross income exceeds the Phaseout Threshold (subject to a limitation that the reduction shall not exceed 80% of the allowable itemized deductions).

The Act also addressed the looming threat that the alternative minimum tax (AMT) will impact more taxpayers.  The Act retroactively increased AMT exemption amounts to reduce the number of taxpayers that will be subject to AMT.

The Act extended the availability of 50% first-year bonus depreciation, and increased the expensing limitation for depreciable property for 2012 and 2013.  In 2012, the expensing limitation was $139,000 (with a phaseout threshold of $560,000), and this amount was set to be reduced dramatically in 2013.  The Act increased the expensing amount for 2012 (retroactively) and 2013 to $500,000 (with a phaseout threshold of $2 million).

Finally, the Act addressed the impending tax increase in the estate, gift, and generation-skipping transfer area.  Absent legislation, the maximum tax rate was set to increase from 35% to 55%, with the exemption amount decreasing from $5 million (actually, $5.12 million as the exemption is adjusted for inflation) to $1 million.  The Act makes the $5 million exemption (adjusted for inflation) permanent and provides for a maximum tax rate of 40%.

What Did the Act Not Address?

Several upcoming tax increases were not addressed by the Act.  The expiring tax holiday for payroll taxes was not address, meaning that the reduced 4.2% tax rate for the employees’ portion of the Social Security payroll tax has expired and the rate has returned to 6.2%. This will be a 2% tax rate increase that employees will immediately see on their paychecks.

In addition, the new 3.8% tax (referred to as the Unearned Income Medicare Contribution) on investment income will apply to most joint filers with adjusted gross income above $250,000 and single filers with adjusted gross income above $200,000.  The tax is essentially a flat tax at a 3.8% rate on investment income above the $250,000/$200,000 threshold.  The tax applies to the following:  dividends; rents; royalties; interest, except municipal-bond interest; short and long-term capital gains; the taxable portion of annuity payments; income from the sale of a principal home above the $250,000/$500,000 exclusion; a net gain from the sale of a second home; and passive income from real estate and investments in which a taxpayer does not materially participate.  Although the tax applies only to investment income above the threshold, other income (including wages or Social Security) can increase a taxpayer’s adjusted gross income above the threshold, exposing the taxpayer to this tax.

Finally, the Medicare tax rate will increase by .9 percent (from 1.45 percent to 2.35 percent) on wages for certain employees (i.e., those with wages over $200,000 for single filers, wages over $250,000 for joint filers, and wages over $125,000 for persons who are married but filing separately).

In short, the Act did prevent many tax increases from going into effect, but it was only a partial fix.  Many other provisions were allowed to go into effect, with the result that many taxpayers will face greater tax liability.

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© Lowndes, Drosdick, Doster, Kantor & Reed, PA

The Fiscal Cliff Legislation: An Executive Summary of What You Need to Know

The National Law Review recently published an article, The Fiscal Cliff Legislation: An Executive Summary of What You Need to Know, written by Michael L. Pate and Elizabeth L. McGinley of Bracewell & Giuliani LLP:

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As everyone knows, the American Taxpayer Relief Act of 2012 (aka, the “Fiscal Cliff Deal”) was passed by the U.S. House of Representatives late in the evening on January 1, 2013. The legislation includes provisions related to tax relief, business tax extenders, energy tax extenders, and the federal budget, among other issues.

To help you navigate this legislation, we have prepared documents featuring concise information on these provisions:

  1. A Summary of the Provisions in the American Taxpayer Relief Act of 2012
  2. The Fiscal Cliff Deal: What’s Included, What Isn’t, and What’s Next
  3. Estimated Revenue Effects of the American Taxpayer Relief Act of 2012

© 2012 Bracewell & Giuliani LLP

Late Action to Avert “Fiscal Cliff” Includes Several Health Policy Changes

MintzLogo2010_BlackAs was widely expected over the month of December, the Obama Administration and Congress scrambled in the late hours of 2012 and on New Year’s Day devising a legislative package to prevent the United States from going over the “Fiscal Cliff,” a series of across-the-board tax increases and spending cuts that would have automatically implemented without intervening legislative action. Although the compromise they reached was far from the “Grand Bargain” that President Obama and many members of Congress were seeking, Vice President Biden and Senate leadership came to an agreement to avoid the cliff for the early part of 2013. The Senate approved the package, the American Taxpayer Relief Act (H.R. 8), by an overwhelmingly bipartisan vote of 89-8 in the early morning hours of New Year’s Day. Later that day, shortly before midnight, the House voted to approve the Senate package by a vote of 257-167, with 85 Republicans joining 172 Democrats in support.

The legislation contains some significant health policy changes, described in more detail below, although its primary purpose is to prevent steep tax increases for 99% of Americans and to delay the automatic “sequestration” spending cuts that were scheduled to go into effect due to an earlier agreement to raise the debt ceiling. In H.R. 8, which the Congressional Budget Office (CBO) estimates will cost around $4 trillion, the sequester is turned off for two months, allowing Congress more time to focus on a comprehensive deficit reduction solution. In addition, current tax rates are permanently extended for all Americans earning up to $400,000 for individuals and $450,000 for married couples. Several other major tax modifications, including some related to the estate tax and capital gains, were also included. Discussion about other aspects of the legislation, including changes to renewable energy programs, may be found here.

The health policy provisions included in the bill fall into two main categories: (1) extension of various health care programs and reimbursement streams under Medicare and other government initiatives, and (2) “offsets” and changes in other programs and payment methodologies to glean savings to cover the costs of the package. A summary of the major health care provisions are as follows.

Summary of Extensions of Health Care Programs/Reimbursement

The most sought-after extender provision in the Act is the so-called “Doc Fix” or physician payment adjustment for Medicare providers. If Congress had failed to act, as of January 1, 2013, reimbursement rates for physicians under the Medicare program would have dropped by about 26.5% based off of the application of the sustainable growth rate (SGR) formula that adjusts Medicare physician reimbursement annually. The effect of the SGR formula, if it is actually implemented, is to decrease, not increase, physician reimbursement. Although there is widespread support for a “permanent fix” to the SGR, the steep costs of not implementing its cumulative reductions leads Congress every year to seek a short-term solution. H.R. 8 freezes the Medicare physician reimbursement rate at its 2012 level until December 31, 2013 with a price tag of about $25 billion over ten years. (A more permanent, albeit expensive, solution for the Doc Fix may be considered in Congress as part of the upcoming debates starting this spring over the debt ceiling increase and continuing resolution.)

In addition to the Doc Fix, several other payment and program extensions were part of the legislative agreement. Some of the more notable provisions include:

  • Ambulance Add-On Payments: This provision continues the base rate payment add-ons for ground ambulance transports through December 31, 2013. Ambulance transports will receive a 2% add-on in urban areas, a 3% add-on for rural areas, and a 22.6% add-on for super-rural areas (a “super-rural area” is defined as a rural county that is among the lowest quartile of all rural counties by population density).
  • Payments for Outpatient Therapy Services: Payments for these services will be capped at $1,880 for any therapy services provided by non-hospital providers. The Act continues to use this limit, but also extends the “exceptions case process” by which providers can receive additional reimbursements if more therapy services are deemed to be medically necessary. The extension lasts until December 31, 2013.
  • Medicare-Dependent Hospital (MDH) Program: H.R. 8 extends the MDH program, which delivers increased reimbursements to small rural hospitals that depend on Medicare payments for a large share of their revenue. The MDH program also supports the development of rural health infrastructure. The extension lasts through the beginning of the next federal fiscal year on October 1, 2013. The Act also extends a payment add-on for low-volume hospitals, which are defined as having fewer than 1,600 Medicare discharges and being at least 15 miles away from the nearest “like-hospital.”
  • Work Geographic Adjustment: Under this provision the existing 1.0 floor on the “physician work” index continues through December 31, 2013, to reflect the geographic differences in cost of resources to provide physician services to Medicare beneficiaries.
  • Medicare Advantage Plans for Special Needs Beneficiaries: The Act extends through 2014 the authority of specialized Medicare Advantage plans to target the enrollment of special needs individuals.
  • Medicare Reasonable Cost Contracts: H.R. 8 allows Medicare Reasonable Cost Contracts to exist through 2014 in areas in which at least two Medicare Advantage coordinated care plans currently operate.
  • Performance Improvement under Medicare: The Act extends funding through 2013 for the Medicare Improvements and Providers Act of 2008 and for outreach and assistance for low-income programs.

Outside of the Medicare program, the Act also has a number of other extensions, including: extending the Qualifying Individual Program, which allows Medicaid to pay Medicare Part B premiums for beneficiaries with incomes between 120% and 135% of the poverty line, until December 31, 2013; extending the Transitional Medical Assistance program, which allows low-income residents to maintain their Medicaid coverage when they start new employment, through December 31, 2013; continuing the Medicaid and CHIP Express Lane option through September 30, 2014; and extending funding for Family-to-Family Health Information Centers and diabetes research, treatment, and prevention programs for American Indians and Alaska Natives.

Summary of Health Care Offsets

In order to offset the projected costs of the extender provisions in the bill, the Act implements cost reductions in Medicare and other government health programs. Most significantly, a provision adjusting the Documentation and Coding of Medicare payments will allow CMS to recoup overpayments that it determines had been made to hospitals, and not yet recovered, as a result of the transition to Medicare Severity Diagnosis Related Groups (DRGs). CMS had been concerned that providers were “over-coding” (providing better documentation and coding of medical records to achieve a higher-weighted DRG) to increase their reimbursements and had instituted a prospective recoupment program covering certain years. This program is now extended. Congress estimates savings of $10.5 billion over ten years. In a separate provision, the Act increases the statute of limitations for recovering overpayments from 3 to 5 years.

Some of the other more notable offsets include the following:

  • End Stage Renal Disease (ESRD) Payments: H.R. 8 makes several changes related to payments for ESRD. It is projected to save $4.9 billion by altering the bundled payment to account for behavioral and utilization changes of dialysis drugs. It also is projected to save $300 million by reducing reimbursement rates by 10% for ambulance services to ESRD individuals receiving non-emergency basic life support services.
  • Medicare Disproportionate Share Hospitals: To save an estimated $4.2 billion, the Act maintains the 75% reduction in the reimbursement rate for Medicare Disproportionate Share Hospitals contained in the Affordable Care Act, and will determine future allotments from this rebased level.
  • Coding Intensity Adjustment: Under current law, Medicare Advantage plans receive a coding intensity adjustment of 3.41%, which reduces those plans’ reimbursement rates so that they more closely match the reimbursement to Medicare fee-for-service plans. This rate factor, determined by the CMS, will be increased to save an estimated $2 billion.
  • Consumer Operated and Oriented Plans (CO-OPs): The Act rescinds all unobligated funds for the CO-OP Program and its plans, which are nonprofit health insurance providers, established by section 1332(g) of the Affordable Care Act. The provision does not take away any obligated CO-OP funds, but it does create a contingency fund consisting of 10% of the current unobligated funds. The contingency fund will be used to help currently approved and created co-ops and will result in an estimated savings of $2.3 billion.
  • CLASS Repeal: The Act repeals the Community Living Assistance Services and Supports (CLASS) program established by the ACA and championed by the late Sen. Ted Kennedy (D-MA). Although in October 2011 the Obama administration suspended the long-term care insurance program in which workers would have paid monthly premiums during their careers to create a cash-bank in case of disability later in life, many Democrats had hoped to revive the program someday. H.R. 8 repeals the CLASS Act, although doing so provided no savings. In its place, the Act creates a Commission on Long-Term Care to develop a plant for the establishment, implementation and financing of a system to make long-term care services and support available for individuals. The Commission has no scoring effect.
  • Medicare Improvement Fund: The Act eliminates the Medicare Improvement Fund for an estimated savings of $1.7 billion.
  • Multiple Therapy Procedure Payment Reduction: The Act reduces payments for physical and other therapy services when they are provided in the same day for an estimated savings of $1.8 billion.
  • Advanced Imaging Services Adjustment: The Act increases the utilization factor used in the setting of payment for imaging services in Medicare from 75% to 90%, which is projected to save $800 million.
  • Competitive Bidding Rates Applicable for all Diabetic Supplies: The Act applies competitive bidding payment rates to diabetic test strips purchased at retail pharmacies for an estimated savings of $600 million.
  • Radiology Services Adjustment: The Act reduces payments for stereotactic radiosurgery services paid for under the Medicare hospital outpatient system, which is expected to save $300 million.

Although the American Taxpayer Relief Act has prevented the country from going over the “fiscal cliff,” the 113thCongress will almost certainly continue to focus on health care cost containment and entitlement reform in the coming weeks and months. Mintz Levin and ML Strategies will continue to closely monitor the effect of fiscal policy on health care.

©1994-2012 Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.

The Effect of the Fiscal Cliff Deal on Estate Planning

An article by Susan C. Minahan with Michael Best & Friedrich LLP, The Effect of the Fiscal Cliff Deal on Estate Planning, was recently featured in The National Law Review:

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In an attempt to avert the “fiscal cliff” at the end of 2012, the American Taxpayer Relief Act of 2012 (the “2012 Act”) was passed by Congress on January 1, 2013, and signed into law by the President on January 2, 2013. The 2012 Act has significant impact on all taxpayers, and is a game changing piece of legislation in the estate, gift, and generation-skipping transfer tax area.

The 2012 Act permanently extends the $5,000,000 unified federal estate, gift, and generation skipping transfer (GST) tax exemptions implemented under the 2010 Tax Relief Act for all such transfers occurring after December 31, 2012. All three exemptions are indexed for inflation. As a result, the exemption amounts in 2013 are $5,250,000. The 2012 Act increases the maximum tax rate from thirty-five percent (35%) to forty percent (40%) for any transfers in excess of the exemption amounts.

The 2012 Act also permanently extends portability of unused estate tax exemption for married couples. Portability, a concept introduced in the 2010 Tax Relief Act, allows a surviving spouse to “port” or add a deceased spouse’s unused estate tax exemption amount to the surviving spouse’s exemption amount without the use of a traditional credit shelter trust. However, portability, as noted in our client alert dated December 20, 2010, should not be solely relied on as an estate planning substitute for several reasons. First, the ported amount can be lost if the surviving spouse remarries. Second, portability does not provide the same asset protection after the first spouse’s death that is provided by traditional credit shelter trust planning. Third, portability does not apply to the GST exemption; therefore, to leverage GST planning, careful dynasty trust planning is still necessary.

It should be noted that the exemptions are “permanent” only as long as Congress chooses not to change them (no tax law change should ever be considered “permanent” with a new Congress every two years).

In light of the 2012 Act and the current estate planning environment, estate planning is still necessary, and the following are continuing opportunities for transferring wealth:

Low Interest Rate Planning

Historically low interest rates continue to present the opportunity for intra-family low interest loans or refinancing of low interest intra-family loans. The January 2013 mid-term applicable federal rate (for 3-9 year loans) is 0.87%. Low interest rate loans can also be combined with gifting, resulting in larger tax free transfers. Sales to intentionally defective grantor trusts (IDGTs) and grantor retained annuity trusts (GRATs) are commonly used techniques for this type of planning, and the 2012 Act fortunately did not impose limits on GRATs, IDGTs or valuation discounts that had been proposed earlier. Congress may impose limits on the use of these techniques in the future, but at least for the time being, the window of opportunity for these techniques remains open.

GST Planning

Dynasty trusts that utilize the GST exemption can be used to transfer assets from generation to generation for multiple generations of a family, avoiding estate, gift, and GST tax at each generation. With the high exemptions, a single person can protect $5,250,000 and a married couple can protect $10,500,000, indexed for inflation, in this manner. In addition, as previously noted, GST exemption is not “portable” and therefore, dynasty trusts are important for married couples in protecting the GST exemption of each spouse. Limitations on the number of years a dynasty trust can run were also not part of the 2012 Act.

Asset Protection

Trusts remain an important part of estate planning, even for smaller estates, because they provide means of asset protection. Trusts can be used to protect assets from a beneficiary’s creditors, including a divorcing spouse. Trusts can also protect assets in the event a beneficiary becomes disabled. Lifetime irrevocable trusts also provide an estate and gift tax “freeze” for a donor’s estate at the value of the trust as of the date of the lifetime gift.

Annual Gifts

In addition to the lifetime gift tax exemption, each taxpayer may make annual exclusion gifts to any number of donees. The annual exclusion was indexed for inflation with the 2001 Act, and in 2013 the annual gift tax exclusion amount is $14,000 per donee.

The following are some other notable provisions of the Act that impact individuals:

  • Extends tax cuts for individuals with incomes under $400,000 and married couples under $450,000;
  • Raises the ordinary income tax rate from 35% to 39.6% for individuals with income over $400,000 and married couples with income over $450,000;
  • Raises capital gains and dividend tax from 15% to 20% for individuals with income over $400,000 and married couples with income over $450,000;
  • Overall limit on itemized deductions are reinstated for individuals with income over $250,000 and married couples with income over $300,000, which may impact lifetime charitable giving plans;
  • Permanently indexes the alternative minimum tax (AMT) for inflation;
  • Expands employees’ ability to convert traditional retirement accounts such as 401(k)s and 403(b)s into Roth accounts; and
  • Extends through 2013 the tax free IRA “rollover” to qualifying charities after age 70½ (Note: special rules relate to actions that may be taken in January of 2013 to treat contributions as being made during 2012).

© MICHAEL BEST & FRIEDRICH LLP

The Fiscal Cliff Deal’s Impact on Clean Energy

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Contains key tax provisions for renewable energy but funding for USDA energy programs is left out

Capping weeks of intense negotiations between the Obama Administration and Congressional leaders to avert the fiscal cliff, the House of Representatives late on the night of Jan. 1 passed HR 8, the American Taxpayer Relief Act, on vote of 257-167. The Act was passed by the Senate, 89-8, in a similar late night vote on Dec. 31, so it now goes to President Obama for his signature.

The Act is not a “grand bargain” or a comprehensive solution: sequestration—the automatic spending cuts Congress imposed on itself–has been postponed for only two months to give time for further negotiations. The Act allows federal tax rates to rise on those making over $400,000 ($450,000 for married couples) but also limits the impact of the Alternative Minimum Tax on 4 million taxpayers. The Act also includes a one-year extension of emergency unemployment benefits and a one-year extension of provisions to prevent doctors’ payments from Medicare from being cut.

The Act is a mixed bag for the clean energy industry but contains some significant wins on tax policy. The Act extends $46 billion in tax cuts for individuals and businesses—the so called tax extenders.Many of these tax extenders target the renewable energy and energy efficiency industries. For example, a tweak to the Section 45 production tax credit will allow projects that begin construction before Jan. 1, 2014 to take advantage of the credit. However, the Act is a disappointment for those depending on USDA Energy Title Programs as no mandatory funding was contained in the ninemonth reauthorization of Farm Bill programs included as part of the package.

Below is a summary of key clean energy provisions in the American Taxpayer Relief Act.

Tax extenders

  • Extension and modification of incentives for Sec. 45 renewable electricity property production tax credit.  Under current law, taxpayers can claim either a 1.1 or 2.2 cent per kilowatt hour tax credit for electricity produced for a 10-year period from eligible facilities placed-in-service by the end of 2012 (wind) or 2013 (closed-loop biomass, open-loop biomass, landfill gas, or municipal solid waste facilities). The provision modifies section 45 to allow eligible renewable energy facilities that begin construction before the end of 2013 to claim the 10-year credit.
  • Extension of investment tax credit in lieu of production tax credit. The Act would allow facilities qualifying for the section 45 production tax credit to elect to take a 30% investment tax credit in lieu of the production tax credit for facilities that begin construction by the end of 2013.
  • Extension of alternative fuel vehicle refueling property credit (non-hydrogen refueling property). The Act extends for two years, through 2013, the 30% investment tax credit for alternative vehicle refueling property.
  • Extension of incentives for alternative fuel and alternative fuel mixtures (other than liquefied hydrogen). The Act extends through 2013 the $0.50 per gallon alternative fuel tax credit and alternative fuel mixture tax credit. This credit can be claimed as a nonrefundable excise tax credit or a refundable income tax credit. Due to claims of abuse in the alternative mixture tax credit, taxpayers can no longer claim the refundable portion of the alternative fuel mixture tax credit.
  • 25C Credit for certain nonbusiness energy property.  The Section 25C credit for energyefficient improvements to existing homes is extended for two years, through 2013. This reinstates the credit as it existed before passage of the American Recovery and Reinvestment Act.
  • Plug-in electric motorcycles and highway vehicles.  The Act reforms and extends for two years, through 2013, the individual income tax credit for highway-capable plug-in motorcycles and 3-wheeled vehicles. It also makes golf carts and other low-speed vehicles ineligible for the credit.
  • Cellulosic biofuels producer tax credit. The Act extends the $1.01 per gallon production tax credit on cellulosic biofuel produced before the end of 2013. The definition of qualified cellulosic biofuel production is expanded to include algae-based fuel.
  • Biodiesel and renewable diesel credits.  The Act extends through 2013 the $1.00 per gallon tax credit for biodiesel, as well as the $.10 per gallon small agri-biodiesel producer credit.  The Act also renews through 2013 the $1.00 per gallon tax credit for diesel fuel created from biomass.
  • Credit for construction of new energy efficient homes.  The tax credit for the construction of energy-efficient new homes that achieve a 30% or 50% reduction in heating and cooling energy consumption is extended for two years, through 2013.
  • Energy efficient appliance credit.  The Act extends for two years, through 2013, a tax credit to US-based companies that manufacture energy-efficient clothes washers, dishwashers and refrigerators.
  • Cellulosic biofuels bonus depreciation.  The 2008 Farm Bill allowed cellulosic biofuel facilities placed-in-service before the end of 2012 to expense half of their eligible capital costs in the first year of operation. The Act extends this bonus depreciation for one additional year for facilities placed-in-service before the end of 2013 and allows algae-based fuel to qualify for bonus depreciation.
  • Special rule for sales of transmission property.  The Act extends the present law deferral of gain on sales of transmission property by vertically integrated electric utilities to FERC approved independent transmission companies. The Act allows gain on such sales prior to January 1, 2014 to be recognized ratably over an eight-year period.
  • Extension of New Markets Tax Credit.  The federal government leverages New Markets Tax Credits (NMTCs) to encourage significant private investment in businesses in low-income communities. The program provides a 39 percent tax credit spread over 7 years.  The Act extends NMTCs for two years, permitting a maximum annual amount of qualified equity investments of $3.5 billion each year.
  • Extension of bonus depreciation. Businesses are allowed to recover the cost of capital expenditures over time according to a depreciation schedule. Starting in 2008, Congress allowed businesses to take an additional depreciation deduction allowance in the first year.  The Act extends the 50 percent accelerated expensing provision for qualifying property purchased and placed in service before January 1, 2014 (before January 1, 2015 for certain longer-lived and transportation assets).

Bioenergy funding

The Act also extends the 2008 Farm Act for nine-months (until the end of fiscal year 2013). A short term extension was necessary after the House refused to vote on a five-year reauthorization. The Act reauthorizes funding for US Department of Agriculture (USDA) Energy Title programs but does not provide mandatory funding. Despite hopeful signals that mandatory funding was included in an agreement between the Agriculture Committees’ leadership, it was not included in the final deal between Senate Minority Leader McConnell and the Obama Administration.

By comparison, the Senate Farm Bill passed last year contained approximately $800 billion over 10 years for USDA energy programs. It also would have expanded eligibility under certain programs to renewable chemicals. These USDA programs provide grants, loans, and loan guarantees to renewable energy and advanced biofuel projects; promote cultivation of cellulosic feedstocks; and provide research funding. Work on a new five-year Farm Act will now have to start again, though much of the groundwork has already been done by the committees.

©1994-2012 Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.