From Teachers to Timber, Tax Deal Rains Benefits

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By Marc Heller

Dec. 16 — If multi-billion dollar tax benefits for research and business expensing are the bones of the tax deal Congress is poised to enact, smaller tax breaks for teachers, farmers and corner stores may be the joints that keep it together.

The so-called tax extenders bill lawmakers are likely to pass on Dec. 17 is full of changes aimed at specific industries or groups of taxpayers, some of which have sought action for years.

Teachers will see a bigger and permanent deduction for the school supplies they buy. College students will be able to use tax-preferred savings accounts to buy computers. Restaurants and retailers will be able to shorten the depreciation period for certain improvements, making them more financially attractive.

List Goes On and On

The list goes on and on, reflecting lawmakers' efforts to tune the tax code to industries in their states or congressional districts, or to appeal to specific causes such as higher education or help for low-income families. Many cost in the millions—not billions—of dollars in forgone revenue to the government, a fraction of the fiscal footprint of items such as the research credit, which the Joint Committee on Taxation estimated at $113 billion from 2016 to 2025 (JCX-143-15).

“I think for each one of those constituent groups, of course, those are important. We've already received phone calls from a lot of those groups saying ‘thank you for your work in that area.' ” said Rep. Dave Reichert (R-Wash.), a member of the House Ways and Means Committee. “Even with a teacher who's spending $500 a year not knowing if that deduction is available, it creates a world of uncertainty.”

Votes Scheduled

The House is set to take up the measure Dec. 17, with the Senate to closely follow. Although many Democrats may vote for it, others—such as Rep. Sander M. Levin (D-Mich.), ranking member on the House Ways and Means Committee—will be “no” votes.

Among other objections, Levin said in a letter to fellow Democrats Dec. 16, the measure doesn't index the Child Tax Credit for inflation but it does index some business-related provisions. “While I support strong tax policy that provides certainty to individuals and American businesses, I cannot support this legislation as it currently stands,” he said.

The deduction for school supplies would be capped at $250 and would be newly indexed to inflation beginning in 2016. Lawmakers also made the deduction available for professional development expenses, bringing the deduction's cost to $2.9 billion from 2016 to 2025.

Other provisions include:

• Permanent extension of the 15-year cost recovery period for qualified leasehold improvements, restaurant and retail building improvements. Supporters, including the National Restaurant Association, said the competitive business requires improvements so often that a longer cost recovery period doesn't make sense.
• Permanent parity for mass transit in commuting benefit. This provision, championed by Sen. Charles E. Schumer (D-N.Y.), permanently puts mass transit on equal footing with parking for the commuter tax benefit in Section 132 of the tax code, at $175 instead of $100. Mass transit parity was extended temporarily in the last tax extender bill, in late 2014. However, the measure doesn't include a provision from the Senate Finance Committee that would have allowed an exclusion for employers' reimbursements of bikeshare program expenses.
• Exceptions for Foreign Investment in Real Property Tax Act. Certain foreign pension funds would be exempt from FIRPTA withholding taxes, a move the real estate industry and some pension funds had sought, and which the Obama administration supported as a way to boost investment in U.S. public works projects, for instance. In addition, regulated investment companies would permanently be considered qualified investment entities not subject to FIRPTA tax.
• Crops newly eligible for bonus depreciation. Growers of nuts, fruits and vines would be eligible for bonus depreciation. This includes blueberries and other bush crops that were overlooked in an earlier bonus depreciation measure passed by the House. Bonus depreciation, broadly, would be phased out by 2019, although some Republican lawmakers told Bloomberg BNA they will continue to push for permanency. The American Farm Bureau Federation pressed lawmakers to close what may have been an oversight on bush crops, primarily blueberries.
• Enhanced college savings account benefit. College savings accounts in tax code Section 529 could be used to buy computer and technology equipment, which was allowed as recently as 2010. The legislation also clarifies that a distribution from an account is considered a withdrawal from only one account, in the event a taxpayer has more than one Section 529 account. Refunds of tuition paid with funds from such an account would be considered a qualified expense as long as re-contributed to a Section 529 account within 60 days.
• Benefit for charitable contributions to agricultural research. The American Farm Bureau Federation lobbied for this provision, which dictates that contributions to agricultural research organizations for research purposes are subject to higher individual limits, generally 50 percent of the taxpayer's contribution base. The enhanced benefit applies as long as the money is used for research within five years.
• Parity for liquefied petroleum gas and natural gas in federal excise tax credit. The federal excise tax credit would be adjusted to measure petroleum gas and natural gas in energy equivalents compared to diesel, rather than gallons. Advocates for the alternative fuels said that on an energy equivalent basis, those fuels have been at a disadvantage to diesel.
• Reduced federal excise tax on hard cider. The legislation would allow stronger alcoholic cider, up to 8.5 percent alcohol, to be treated on an equal footing with beer, rather than being taxed comparably with wine. Schumer pushed for this provision. However, lawmakers didn't include a proposal from Sen. Ron Wyden (D-Ore.) to revamp excise taxes on beer, including the craft brewers dominant in his state.
• Deduction for contribution of real property for conservation. The deduction for contribution of real property for conservation would be made permanent, as would an enhanced deduction for certain corporate farmers. For the first time, Alaska Native Corporations would receive deductions up to 100 percent of taxable income for charitable contributions of conservation easements. The measure would treat ANCs similar to farmers and ranchers.
• Enhanced Work Opportunity Tax Credit. The measure extends the WOTC through 2019—one of a handful of provisions given longer but temporary extensions. The benefit would be available to the long-term unemployed— 27 weeks or longer—and would climb to 40 percent of the first $6,000 of wages for those individuals.
• Credit for electric motorcycles. A favorite of Wyden, this credit that expired at the end of 2013 would be given a second chance. The 10 percent credit would be capped at $2,500. It was conspicuously left out of a tax extenders measure at the end of 2013 by then-Ways and Means Committee Chairman Dave Camp (R-Mich.), giving it a one-year hiatus from the tax code.
• Taxes for timber gains. The measure sets the income tax rate for gains from timber at 23.8 percent for 2016, meaning corporations will pay the same, relatively lower capital gains rate as passthrough entities. Companies such as Deltic Timber Corp. of El Dorado, Ark., have been pushing for that change. 

To contact the reporter on this story: Marc Heller in Washington at

To contact the editor responsible for this story: Brett Ferguson at

For More Information

Texts of the tax extenders bill,Protecting Americans From Tax Hikes Act, a summary of the extenders bill, and Joint Committee on Taxation report (JCX-143-15) are in Taxcore.