2016 year-end tax letter: Tax legislation

The possibility exists that there will be some tax legislation following the election. Senate Finance Chairman Orrin Hatch indicated that a variety of items may be considered, including energy provisions that were left out of last year’s extenders legislation. However, lame-duck sessions are historically unproductive, with the party winning the election preferring to wait until they have greater control in the following year.

Extenders legislation

Many corporate and individual tax breaks are not a permanent part of the IRC. These temporary provisions are typically extended for one or two years as a part of a legislative package known as “tax extenders.” In December of 2015, the Protecting Americans from Tax Hikes (PATH) Act of 2015 was signed into law, which made many of these permanent, including the research and development credit, the enhanced section 179 deduction and the employer wage credit for employees who are active duty members of the uniformed services. Bonus depreciation was extended for property acquired and placed in service through 2019 (50 percent for property placed in service in 2015, 2016 and 2017; phases down to 40 percent in 2018; and 30 percent in 2019). Others were extended through 2016, including the exclusion from gross income of discharge of qualified principal residence indebtedness, empowerment zone tax incentives, and various credits and incentives for qualifying energy-related properties, among others. To date, none of the provisions extended by the PATH Act through 2016 have been further extended.

In previous years, tax extenders were passed either late in the year or early in the following year, extending the expiring provisions for an additional year or two years (or in the case of the PATH Act, making some of them permanent) retroactive to the beginning of the year. It is possible the lame-duck Congress will look to address tax legislation after the presidential election; however, given the circumstances, it is impossible to predict. In the absence of certainty, we recommend you prioritize your business needs over tax incentives when making decisions, monitor legislation and be prepared to act accordingly and practicable in the event extenders are passed at the eleventh hour.

The following is a list of some of the major extender provisions that will expire at the end of 2016:

Business provisions

  • Empowerment zone tax incentives
  • Deduction allowable with respect to income attributable to domestic production activities in Puerto Rico

Individual provisions

  • Discharge of indebtedness on principal residence excluded from gross income
  • Premiums for mortgage insurance deductible as qualified residence interest
  • 7.5 percent adjusted gross income floor for medical expense deduction for individuals age 65 and older
  • Deduction for qualified tuition and related expenses

Energy provisions

  • Credit for nonbusiness energy property
  • Second-generation biofuel producer credit
  • Incentives for biodiesel and renewable diesel
  • Credit for the construction of energy-efficient new homes
  • Credit for the purchase of residential energy-efficient property
  • Energy-efficient commercial buildings deduction
  • Excise tax credits relating to certain fuels

View more insights in the 2016 year-end tax planning letter >

Download the 2016 year-end tax planning letter >

The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely.  The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.