CAA: Business Tax Provisions & Extensions
by Bethany Banks
The Consolidated Appropriations Act, 2021 (2021 CAA) was signed into law in late December and contains many new tax laws aimed at providing additional relief to American businesses. This overview will highlight many of the business tax provisions that have not already been discussed in previous news articles.
Energy-Efficient Commercial Buildings
The deduction for energy-efficient improvements to specific systems of commercial buildings has been made permanent along with a few modifications. The systems that this applies to are lighting, heating, cooling, ventilation, hot water, and building envelope. The modifications are to update the ASHRAE standard referenced and index the limitation to inflation. The limitation is currently $1.8/square foot. The modifications are effective for years beginning after December 31, 2020.
Depreciation of certain residential rental property
Residential rental property placed in service before January 1, 2018 that is held by an electing real property trade or business has a recovery period of 30 years versus 40 years.
Business Meals Deductions
The Act provides a temporary allowance to take a 100% deduction on business meal, both food and beverage, expenses provided by a restaurant and paid/incurred in 2021 and 2022. This is an expansion of the 50% deduction that was previously available. This allowance also applies to delivery and takeout related to business meals provided by a restaurant.
The same standard rules apply including the meal not being lavish or extravagant, presence of yourself or employee(s), and requirement of a business associate.
Health & Dependent Care Flex Spending Arrangements
Many taxpayers who fund health and dependent care flex spending arrangements (FSA) have found themselves unable to use all of the amounts they set aside during 2020. Either they found themselves not using as much of the FSA for medical purposes due to the reticence to seek care in the middle of a pandemic for fear of contagion or inability to obtain appointments/treatment or they ceased to use dependent care with dependents being sequestered at home for online school. A big concern was what would happen with those funds contributed that were unused and would typically not be allowed to be carried over.
The Act has expanded the carryover period for both 2020 and 2021. Employers may allow a carryover of the unused benefits up to the full annual amount for 12 months after the end of the plan year for 2020 and 2021. There is also a special carryforward rule for those whose dependent aged out during the pandemic. Plans may allow employees who cease to participate to continue to receive reimbursement from unused benefits or contributions through the end of the plan year in which participation ceased including any grace period.
Employers opting to provide these benefits to their employees will be required to amend their plan documents to allow for such provisions to be added. The Act provides employers with a timeline for making these plan amendments.
Look-Thru Rule & Related Controlled Foreign Corporations
The look-thru rule for related controlled foreign corporations (CFCs) has been extended through to December 31, 2025. Items that frequently fall under foreign personal holding company (FPHC) income are not treated as FPHC income if received from another CFC that is a related person and attributable/properly allocable to income of the related CFC that is not Subpart F or effectively connected with a US trade or business. This look thru rule was set to end January 1, 2021 but has been extended through 2025.
New Markets Tax Credit
The New Markets Tax Credit has been extended through 2025 and provides a credit to individuals or corporate taxpayers who invest in low-income communities. The tax credit limitation is $5M for each year of 2020-2025. No amount may be carried over to any calendar year after 2030. In extending the credit by 5 years they also extended the period of use of carried over credit by 5 years.
Empowerment Zone Tax Incentives
The incentives were extended until December 31, 2025. While the incentives were extended, there is no extension on the empowerment zone 179 expensing and nonrecognition of gain on rollover of empowerment zones. If an empowerment zone designation included in the nomination a termination date of December 31, 2020 the entity may amend the nomination for a new termination date.
Electricity from Certain Renewable Resources
The credit for electricity produced from certain renewable resources such as wind facilities, closed-loop biomass facilities, and more has been granted a one-year extension. The construction must begin before January 1, 2022.
The energy credit and phaseout have been extended under the 2021 CAA. Solar energy property construction that begins before January 1st, 2023 has an extension of the 26% credit and construction that begins before January 1, 2024 has an extension of the 22% credit. The construction must be placed in service before 2026 to receive the 26 or 22% credit. The credit is limited to 10% if placed in service after December 31, 2025.
Fiber-optic solar, qualified fuel cell, and qualified small wind energy property have the same extensions except that contribution placed in service after December 31, 2025 receives 0% credit.
The credit for geothermal heat pumps, combined heat and power system property, and qualified microturbine property also receives an extension for construction that begins before January 1, 2024.
As always, please reach out to your trusted BRC tax advisor if you have any questions.
The following are additional articles that cover other important topics impacted by the 2021 CAA:
- Click Here: Individual Tax Provisions and Extensions
- Click Here: PPP Loan Recipients May Now Claim Employee Retention Credit for Wages Paid During 2020
- Click Here: Payroll Tax Relief Provisions
- Click Here: Continued Assistance for Unemployed Workers
- Click Here: Benefits to Affordable Housing Industry and Families Who Qualify for Rental Assistance
- Click Here: Additional Provisions of the Education Stabilization Fund
- Click Here: Latest COVID-19 Legislation Will Bring Much Needed Small Business Relief (PPP Loans)
- Click Here: Additional Recovery Rebates for Individuals
- Click Here: Latest COVID-19 Legislation Provides Tax Deductibility of PPP Expenses