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March 2, 2020

Year-End Tax Extenders Bill Affects Commercial RE – Here’s How

Changes in December’s Further Consolidated Appropriations Act, 2020 (FCAA) revived nearly 30 temporary tax provisions, but taking advantage of the tax extenders will take some planning. The challenge for commercial real estate owners and developers lies in the timing of the FCAA’s tax provisions. Not all of the tax extenders included in the FCCA have the same effective periods, and not all of the expiring tax provisions that are typically renewed made the final cut. The following breaks down which provisions made it into law and when those provisions can be put into play.

Not Appearing in This Bill

Commercial real estate groups that have been making green energy or other similar types of improvements to their properties may want to take note. For construction that began prior to Jan. 1, 2020, businesses had the opportunity to take up to a 30% tax credit for investments in solar energy property. Congress did not extend the 30% credit percentage level for purposes of this business Investment Credit, which means the credit will begin to phase down. Businesses can take the credit in the year that construction begins for business solar energy property. For 2020, the business Investment Credit is 26%, 22% in 2021 and 10% thereafter (with possible reductions if not placed in service by a target date). Also not modified was the Residential Energy-Efficient Property Credit, which is used for non-business investments in solar energy property. The residential credit is also currently winding down. For the year non-business solar property is placed in service, the Residential Energy-Efficient Property Credit is 26% in 2020, 22% in 2021 and completely phased out by 2022.

One-Year Renewal

The tax reform law commonly known as the Tax Cuts and Jobs Act (TCJA) created a temporary tax credit for employers that provide paid family medical leave. Employers could take credits equal to between 12.5 and 25% of certain wages paid to qualifying employees while the employee was on family and medical leave. Originally, the paid family medical leave credit was only available for the 2018 and 2019 tax years, but the FCAA gave it a one-year extension so that it can be used in 2020.

Work Opportunity Tax Credit

The Work Opportunity Tax Credit also received a one-year extension through 2020 under the FCAA. The credit is available to employers that hire individuals from certain targeted groups who have consistently faced significant barriers to employment, including veterans and individuals with criminal convictions. Credits range from $1,200 to $9,600 for the hiring of qualified employees.

New Markets Tax Credit

If you operate in a designated low-income area, you may be interested in taking advantage of the New Markets Tax Credit, which the FCAA extended through 2020. The credit offers an incentive for investment in community development entities (CDEs) that undertake development projects in certain low-income communities. For the program, the Treasury Department competitively allocates tax credit authority to CDEs that select investment projects, and investors receive a tax credit worth up to 39% of their investment amount. Investors take that credit over a seven-year period.

‘Look-Through’ Rules

If your organization has related controlled foreign corporations (CFCs), it may want to make a note that Congress renewed the ‘Look-Through’ Rule through 2020. The look-through rule creates an exception to the Subpart F requirement for qualifying payments for dividends, rents or royalties between related CFCs. CFCs can exclude this intercompany income to the extent it is not effectively connected with the U.S. trade or business or attributable or properly allocable to non-Subpart F income. 

Provisions Extended Retroactively to 2018

Several tax provisions expired in 2018 as a casualty of previous extenders negotiations. Two notable provisions received new life and may be claimed for the 2018 and 2019 tax years. These provisions will also be available through 2020:

Empowerment Zones

Real estate groups operating in certain geographic areas designated as empowerment zones under Section 1391 may want to review their tax filings. The FCAA retroactively extended the Empowerment Zone Employment Credit to 2018. If you operate within an empowerment zone – generally characterized by high poverty or rates of unemployment – you may be eligible for a tax credit up to $3,000 for each employee who lives in the empowerment zone, which is calculated on the first $15,000 of wages per year for each eligible employee.

Energy-Efficient Building Incentives

Also retroactively extended was the energy-efficient commercial building deduction under Section 179D. The energy-efficient commercial building deduction permits building owners to take tax deductions that range from $0.60 to $1.80 per square foot for qualifying systems that meet certain efficiency standards.

The Nonbusiness Energy Property Credit (not to be confused with the Residential Energy-Efficient Property Credit) was also extended retroactively to 2018 and through 2019 to allow homeowners a credit of up to $300 for certain energy-efficiency improvements (windows, HVAC, etc.).

Do You Need to Adjust 2018 Reporting?

With the retroactive extensions of some of the provisions, you may face the choice of whether to amend your 2018 tax return (and/or the 2019 return if you have already filed it). The answer to that question will depend on your situation. You should really only amend a return if the credit will offset the cost involved in the adjustment.

For more information about how the extenders affect your business, please contact us.

Related Reading

Congress Reaches Deal to Renew Expired Tax Incentives and Provide New Tax Relief Measures

2019 Individual Tax Planning Supplement

 

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