(Updated) Today (12.18.2015), President Obama signed into law a $1.1 trillion spending bill that was passed with bipartisan votes in both the Senate and House of Representatives. The legislation included some long-sought small-business tax provisions, including the capital investment depreciation provision called Section 109.
The following is a list of provisions in the legislation that can be found in a more comprehensive version in this PDF provided by the Senate Finance Committee. (And, as we always note: Any tax-related decision you make should be discussed with your accountant and other financial advisors as each situation is unique.)
Business-related provisions in the 2016 ‘omnibus’ spending bill
1. Extension and modification of research credit.
The provision permanently extends the research and development (R&D) tax credit. Additionally, beginning in 2016 eligible small businesses ($50 million or less in gross receipts) may claim the credit against alternative minimum tax (AMT) liability, and the credit can be utilized by certain small businesses against the employer’s payroll tax (i.e., FICA) liability.
2. Extension and modification of employer wage credit for employees who are active duty members of the uniformed services.
The provision permanently extends the 20 percent employer wage credit for employees called to active military duty. Beginning in 2016, the provision modifies the credit to apply to employers of any size, rather than employers with 50 or fewer employees, as under current law.
3. Extension of 15-year straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements.
The provision permanently extends the 15-year recovery period for qualified leasehold improvements, qualified restaurant property, and qualified retail improvement property.
4. Extension and modification of increased expensing limitations and treatment of certain real property as section 179 property.
The provision permanently extends the small business expensing limitation and phase-out amounts in effect from 2010 to 2014 ($500,000 and $2 million, respectively). These amounts currently are $25,000 and $200,000, respectively. The special rules that allow expensing for computer software and qualified real property (qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property) also are permanently extended. The provision modifies the expensing limitation by indexing both the $500,000 and $2 million limits for inflation beginning in 2016 and by treating air conditioning and heating units placed in service in tax years beginning after 2015 as eligible for expensing. The provision further modifies the expensing limitation with respect to qualified real property by eliminating the $250,000 cap beginning in 2016.
5. Extension of treatment of certain dividends of regulated investment companies.
The provision permanently extends provisions allowing for the pass-through character of interest-related dividends and short-term capital gains dividends from regulated investment companies (RICs) to foreign investors.
6. Extension of exclusion of 100 percent of gain on certain small business stock.
The provision extends the temporary exclusion of 100 percent of the gain on certain small business stock for non-corporate taxpayers to stock acquired and held for more than five years. This provision also permanently extends the rule that eliminates such gain as an AMT preference item.
7. Extension of reduction in S-corporation recognition period for built-in gains tax.
The provision permanently extends the rule reducing to five years (rather than ten years) the period for which an S corporation must hold its assets following conversion from a C corporation to avoid the tax on built-in gains.
8. Extension of subpart F exception for active financing income.
The provision permanently extends the exception from subpart F income for active financing income.
9. Extension of new markets tax credit.
The provision authorizes the allocation of $3.5 billion of new markets tax credits for each year from 2015 through 2019.
10. Extension and modification of work opportunity tax credit.
The provision extends through 2019 the work opportunity tax credit. The provision also modifies the credit beginning in 2016 to apply to employers who hire qualified long-term unemployed individuals (i.e., those who have been unemployed for 27 weeks or more) and increases the credit with respect to such long-term unemployed individuals to 40 percent of the first $6,000 of wages.
11. Extension and modification of bonus depreciation.
The provision 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 bonus depreciation percentage is 50 percent for property placed in service during 2015, 2016 and 2017 and phases down, with 40 percent in 2018, and 30 percent in 2019. The provision continues to allow taxpayers to elect to accelerate the use of AMT credits in lieu of bonus depreciation under special rules for property placed in service during 2015. The provision modifies the AMT rules beginning in 2016 by increasing the amount of unused AMT credits that may be claimed in lieu of bonus depreciation. The provision also modifies bonus depreciation to include qualified improvement property and to permit certain trees, vines, and plants bearing fruit or nuts to be eligible for bonus depreciation when planted or grafted, rather than when placed in service.
12. Extension of look-thru treatment of payments between related controlled foreign corporations under foreign personal holding company rules.
The provision extends through 2019 the look-through treatment for payments of dividends, interest, rents and royalties between related controlled foreign corporations.
(Updated: Friday, 12.18.2015 to include passage of legislation by the Senate and being signed into law by the President)