** Updated 12/28/20 to reflect the signing of the bill into law. **
The Consolidated Appropriations Act, 2021, signed into law on December 27, 2020, offers many tax related provisions to begin analyzing in the 5,600 page legislative package.
In addition to allowing taxpayers to deduct expenses paid with forgiven PPP funds and the much discussed $600 stimulus checks, the Act contains a variety of one- and five-year extenders, as well as tax saving and administrative measures. Below is an overview of the Act and what you can expect.
>> Read “COVID Stimulus Package Allows Taxpayers to Deduct Expenses Paid with PPP Funds”
One-Year Tax Credit and Charitable Contribution Extensions
The following notable provisions have been extended one year:
- The Section 45(d) credit for electricity produced from certain renewable facilities. Construction on facilities must now have begun before the end of 2021 to qualify for the credit.
- The Section 48 26% Investment Tax Credit. This credit applies to solar energy property, fiber-optic solar equipment, fuel cell property and small wind energy. Construction of property must now have begun before the end of 2022.
- The Section 45(L) 10% credit for nonbusiness energy property. This is extended through 2021.
- Mortgage insurance premiums. Certain premiums may be treated as qualified residence interest through 2021, subject to a phase out.
- CARES Act increased charitable contribution limit of 100% of AGI. This has been extended one year for tax years beginning in 2021.
Five-Year Tax Credit and Indebtedness Extensions
The following notable provisions have been extended five years:
- New Markets Tax Credit. The Act provides a $5 billion annual allocation.
- Work Opportunity Tax Credit. This credit pertains to hiring individuals from certain targeted groups.
- Exclusion of discharge of qualified principal residence indebtedness from gross income.
- Employer tax credit for paid family and medical leave. The Act extends the tax credit of equal to 12.5% of wages, if the rate of payment is 50% of such wages, and increases incrementally for the payment of wages over 50%.
New Tax Provisions and Modifications
In addition to the above extensions, the Act also contains some new provisions and modifications. Some of these items are highlighted below:
- Low-income housing tax credit. The Act established a new minimum low-income housing tax credit rate of 4% for property placed in service after December 31, 2020.
- Temporary allowance of a full deduction for business meals. Meals must have been incurred on or after January 1, 2021, and before January 1, 2023. Before this change, a taxpayer was entitled to a 50% deduction for such meal expenses.
- Extension, expansion and modification of the Employee Retention and Rehiring Tax Credit
- Extension of the credit from January 1, 2021, to July 1, 2021
- Increase in the credit from 50% to 70% and an increase in the limitation per employee from $10,000 for all quarters, to $10,000 for each quarter
- Various other modifications and technical corrections
- 30-year depreciable life for residential real property. This type of property placed in service before January 1, 2018, of an electing real property trade or business for Sec. 163(j) purposes has been given a 30-year depreciable life.
- Extension and modification of the $300 non-itemized charitable deduction allowance
- The special deduction is now allowed for 2021.
- Married couples that file jointly are entitled to up to a $600 deduction.
While the tax provisions of this Act, aside from PPP deductibility, are not as impactful of some of those made in the CARES Act, tax saving potential is still available for many taxpayers. We will provide more detailed analysis of the impact of these items in an upcoming post.
Contact a member of your service team to discuss this topic further.
Cohen & Company is not rendering legal, accounting or other professional advice. Information contained in this post is considered accurate as of the date of publishing. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts, circumstances and current law.