President signs tax extenders, government funding legislation

Legislation passed in mid-December contain several credits, incentives and other provisions important to the renewable energy industries, writes John Kirkwood. This column appears in the March issue of EPM.
By John Kirkwood | February 03, 2016

Prior to recessing for the holidays, Congress passed the Protecting Americans from Tax Hikes Act of 2015, known as the PATH Act, and an omnibus funding bill for fiscal year 2016 known as the 2016 Consolidated Appropriations Act or the Appropriations Act, which the president signed on Dec. 18. These companion pieces of legislation contain a number of significant provisions for the energy and renewable energy industries.

Second-generation biofuels producer credit: The PATH Act extends the $1.01 per gallon producer credit for qualified second-generation biofuel production occurring after Dec. 31, 2014, and prior to Jan. 1, 2017. 

Special allowance for second-generation biofuel plant property: PATH extends through 2016 the 50 percent bonus depreciation for cellulosic biofuels facilities for property placed in service after Dec. 31, 2014.

Credits relating to alternative fuels: PATH extends, through 2016, the 50 cents per gallon alternative fuel tax credit and alternative fuel mixture tax credit effective for fuel sold or used after Dec. 31, 2014. 

Biodiesel and renewable diesel incentives: PATH extends the $1 per gallon biodiesel fuels incentives through Dec. 31, 2016, for fuel sold or used after Dec. 31, 2014. 

Other facilities producing energy from certain renewable resources: The PATH Act extends the production tax credit for certain other projects the construction of which begins before Jan. 1, 2017. These projects include closed-loop biomass facilities, open-loop biomass facilities, geothermal or solar energy facilities, landfill gas facilities, trash facilities, qualified hydropower facilities and marine and hydrokinetic renewable energy facilities. The PATH Act also provides that the investor tax credit in lieu of production tax credit is extended for projects that begin construction before Jan. 1, 2017.

New markets tax credit: PATH extends this tax credit through 2019 and allocates $3.5 billion of credits for each of years 2015 to 2019 effective for calendar years beginning after Dec. 31, 2014. 

Bonus depreciation: PATH Act extends bonus depreciation for property acquired and placed in service during 2015 through 2019 (with an additional year for certain property with a longer production period). The amendments provide for a phasedown of bonus depreciation, as follows:
• Jan. 1, 2015, through Dec. 31, 2017—50 percent.
• Jan. 1, 2018, through Dec. 31, 2018—40 percent.
• Jan. 1, 2019, through Dec. 31, 2019—30 percent.

In order to benefit from bonus depreciation, the requirements of Section 168(k)(2)(A) for qualified property must be met. Additionally, the amendments permit a taxpayer may elect to accelerate the use of alternative minimum tax (AMT) credits in lieu of bonus depreciation under special rules for property placed in service during 2015. During 2016, the provision modifies the AMT by increasing the amount of unused AMT credits that may be claimed in lieu of bonus depreciation.  Reference is made to Section 143 of the PATH Act for the various effective dates of these amendments. 

Increased expensing limitations: The PATH Act permanently extends the expensing limitation and phase-out amounts currently in effect from $25,000 and $200,000, respectively, to $500,000 and $2 million, and provides for indexing both the $500,000 and $2 million limits to inflation beginning in 2016. Additionally, the amendments permanently extend the provisions for expensing of computer software and qualified real property, and modify the expensing limitation for qualified real property by elimination of the $250,000 aggregate cost that may be taken into account for any taxable year.  

Research tax credit: The PATH Act permanently extends the R&D tax credit. Additionally, beginning in 2016, certain eligible small businesses (those having $50 million or less in gross receipts) may claim the R&D tax credit against AMT tax liability, certain qualified small businesses (those having $5 million or less in gross receipts), may use the R&D tax credit against the employer’s payroll tax liability.

Also included in the Omnibus Act were extensions to a production tax credit and investment tax credit for wind energy, as well as an investment tax credit for solar energy. And, restrictions on oil exports were lifted, except in certain situations.

Author: John Kirkwood, Partner
Faegre Baker Daniels LLP
Energy & Natural Resources Industry Group