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What Federal Tax Credits are available? Here's the definitive list of what's old and new.

by: Anthony Parent   2018-03-15

Tax Reform was poised to eliminate many Federal Tax Credits and create new ones. And now that the smoke has cleared, we are able to see which tax credits survived, and which ones have been modified, and which ones have been added and will be available for tax years 2018 and going forward.

 

Tax Credits not changed by Tax Reform

 

The following list of tax credits were at some point proposed to be modified or repealed, but were ultimately not changed by the Tax Reform Act:

 

The New Markets Tax Credit: The New Markets Tax Credit (NMTC) Program incentivizes business and real estate investment in low-income communities of the United States via a federal tax credit.

 

Work Opportunity Tax Credit: The Work Opportunity Tax Credit (WOTC) is a Federal tax credit available to employers who hire and retain veterans and individuals from other target groups with significant barriers to employment. Employers claim about $1 billion in tax credits each year under the WOTC program.

 

Increasing Research Activities Credit: Increasing Research Activities Credit, known as  known as R&D Tax Credits, is a nonrefundable federal tax credit first implemented in 1981 as an incentive for businesses and other entities to increase their research and development activities. Many businesses and individuals don't claim what they are entitled to as they were told ot be fearful of an IRS audit of R&D credits. However, proper documentation of qualified R&D expenses  gives the IRS and tax court little choice but to allow the credit. 

 

Production Tax Credit: The renewable electricity Production Tax Credit (PTC) is a per-kilowatt-hour tax (kWh) credit for electricity generated using qualified energy resources.

 

Energy Investment Tax Credit: The Business Energy Investment Tax Credit (ITC) is a U.S. federal corporate tax credit that is applicable to commercial, industrial, utility, and agricultural sectors. Eligible technologies for the ITC are solar water heat, solar space heat, solar thermal electric, solar thermal process heat, photovoltaics, wind, biomass, geothermal electric, fuel cells, geothermal heat pumps, CHP/cogeneration, solar hybrid lighting, microturbines, and geothermal direct-use. This program is co-administered by the Internal Revenue Service (IRS) and the U.S. Department of Energy (DOE).

 

Qualified Child Care Credit: The Qualfied Child Care Credit offers up to a $3000 tax credit for child and dependent care expenses.

 

Disabled Access Credit: The Disabled Access Credit provides a non-refundable credit for small businesses that incur expenditures for the purpose of providing access to persons with disabilities. An eligible small business is one that earned $1 million or less or had no more than 30 full time employees in the previous year; they may take the credit each and every year they incur access expenditures.

 

Credit for Employer's Social Security Taxes Paid with respect to Employee Tips: The FICA Tip Credit allows restaurants and bars to receive an income tax credit for employer-paid payroll taxes on employee tips. By eliminating the amount of payroll tax that employers pay, the credit theoretically eliminates an employer’s incentive to hide or underreport tip income.

 

Enhanced Oil Recovery Credit:  A qualified EOR project is generally a project that involves increasing the amount of recoverable domestic crude oil through the use of one or more tertiary recovery methods as defined in Code Sec. 193(b)(3).

 

Credit for Producing Oil and Gas from Marginal Wells: The marginal well tax credit is a production-based tax credit that provides a $3-perbarrel credit for the production of crude oil and a $0.50-per-1,000-cubic-feet (Mcf) credit for the production of qualified natural gas from a qualified marginal well.

 

Credit for Production from Advanced Nuclear Power Facilities: The advanced nuclear production tax credit (PTC) provides a 1.8 cent per kilowatt hour (kWh) tax credit for electricity sold that was produced at qualifying facilities. Criteria for qualifying facilities include that they must use nuclear reactor designs approved by the Nuclear Regulatory Commission after 1993, and must be placed in service by the end of 2020. Qualifying facilities can claim tax credits during the first eight years of production.

 

Renewable Electricity Production Credit: The federal renewable electricity PTC is an inflation-adjusted per-kilowatt-hour (kWh) tax credit for electricity generated by qualified energy resources and sold by the taxpayer to an unrelated person during the taxable year.

 

Low-Income Housing Tax Credit (LIHTC): he LIHTC program gives State and local LIHTC-allocating agencies the equivalent of nearly $8 billion in annual budget authority to issue tax credits for the acquisition, rehabilitation, or new construction of rental housing targeted to lower-income households

 

Tax credits that were modified by Tax Reform

 

Orphan Drug Tax Credit (ODTC):  The ODTC encourages investment in the development of treatments for rare diseases, has been modified under the Act to reduce the credit from 50 percent of qualified clinical testing expenses to 25 percent of qualified clinical testing expenses for amounts paid or incurred in tax years beginning after December 31, 2017.

 

The Rehabilitation Credit: The Rehabilitation Tax Credit encourages the reconstruction and rehabilitation of certain buildings, has been modified under the Act. The 10 percent credit for qualified rehabilitation expenditures for pre-1936 buildings has been repealed. The 20 percent certified structure rehabilitation credit has been modified so that instead of claiming it all in the year placed in service, the credit is now taken over a five-year period.

 

Expired tax credits that will likely be renewed

 

The Empowerment Zone Tax Credit and Indian Employment Credit expired December 31, 2016. A tax extenders bill (s 2256) was introduced in the Senate on December 20, 2017 that would extend both of these credits.

 

New tax credits created by tax reform

 

The Tax Cuts and Jobs Act created the following new credits.

 

Employer Credit for Paid Family and Medical Leave. This new credit allows for eligible employers in 2018 and 2019 to claim a credit up to 12.5 percent of wages for qualifying employees who are on family or medical leave in addition to a credit of 0.25 percent (capped at 25 percent) for each percentage point that the family and medical leave pay exceeds 50 percent of the employee's regular wages. The eligible employer must have a written policy that allows qualifying full-time employees at least two weeks of annual paid family and medical leave (up to 12 weeks) and allows for non-full time employees a commensurate amount of leave on a pro rata basis. Similar to other wage-based credits, taxpayers are required to reduce their wage deduction by the amount of the credit.

 

Qualified Opportunity Zone: While not a credit, Tax Reform added am very interesting and what could be an incredibly valauble provision that provides certain low-income community population census tracts, as defined under a different statutory section, to be designated as qualified opportunity zones. The provision gives a temporary deferral of inclusion in gross income for capital gains reinvested in a qualified opportunity fund and a permanent exclusion of capital gains from the sale or exchange of an investment in a qualified opportunity fund.

 

 


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