In 30 days, over a million people will crowd into Times Square to watch the ball drop. Families across the country will sing Auld Lang Syne and toast to the new year. And, amidst the celebration and revelry of New Year’s Eve, 36 minor tax provisions are set to expire from the U.S. taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. code.
The 36 tax provisions that are set to expire – known as “tax extenders” – are a hodgepodge of minor tax breaks for businesses and individuals. They range from credits for renewable energy and railroad track maintenance, to faster write-offs for racehorses and mine safety equipment, to tax benefits for Puerto Rican rum.
If Congress takes no action by December 31st, all 36 tax provisions will expire, and taxpayers will not be able to rely on them when planning for 2017. In fact, it appears increasingly likely that Congress will simply let all of the extenders expire at the end of this year.
This is not the first time that Congress has faced the situation of expiring tax provisions. In fact, almost all of the 36 provisions that are set to expire on December 31st have been renewed several times, after being on the brink of expiration on multiple occasions. A few of the provisions have been “temporary” parts of the tax code for over a decade.
For over a decade, renewing the tax extenders was a year-end ritual for Congress, which would scramble every other December to enact a short-term extension of dozens of expiring tax provisions. However, near the end of 2015, Congress passed the Section 179 expansion and the R&D credit – into permanent law.
Because of the changes in last year’s bill, the tax provisions set to expire at the end of this year are fewer and less significant. The remaining 36 tax extenders fall into three categories: tax incentives for renewable energy, tax breaks for homeowners, and miscellaneous provisions for businesses. None of these provisions are particularly large or consequential; most are aimed at narrow sectors of the U.S. economy.
In the past, it was never a real question whether Congress would renew the tax extenders; the expiring provisions were simply too important not to extend them. But now, the 36 tax extenders that remain carry much lower stakes, and it’s possible that Congress just decides to let them all expire.
Ideally, Congress would review all of the tax extenders, determine which ones are worth making permanent, and let the rest expire. There’s no reason why dozens of tax provisions should exist on a temporary basis, or why Congress should have to devote attention to a tax extenders bill every other year. However, lawmakers have shown no interest in this approach heretofore, and it is more likely that all 36 provisions will be renewed or will expire together.
After all, even if Congress lets the remaining tax extenders expire thirty days from now, these tax provisions may not be done for good. It is possible that Congress will choose to renew some or all of the extenders retroactively, sometime in 2017. As the tax reform discussion moves forward next year, it will be interesting to see if any of the remaining tax extenders are renewed, or even made permanent.
| Tax Provisions Expiring on December 31, 2016 |
| Renewable Energy Provisions |
| 1. Credit for certain nonbusiness energy property |
| 2. Credit for residential energy property |
| 3. Credit for qualified fuel cell motor vehicles |
| 4. Credit for alternative fuel vehicle refueling property |
| 5. Credit for two-wheeled plug-in electric vehicles |
| 6. Second generation biofuel producer credit |
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7. Incentives for biodiesel and renewable diesel: a. Income tax credits for biodiesel fuel, biodiesel used to produce a qualified mixture, and small agri-biodiesel producers b. Income tax credits for renewable diesel fuel and diesel used to produce a qualified mixture c. Excise tax credits and outlay payments for biodiesel fuel mixturesExcise tax credits and outlay payments for renewable diesel fuel mixtures |
| 8. Beginning-of-construction date for non-wind renewable power facilities eligible to claim the electricity production credit or investment credit in lieu of the production credit |
| 9. Credit for construction of new energy efficient homes |
| 10. Credit for hybrid solar lighting system property |
| 11. Credit for geothermal heat pump property, small wind property, and combined heat and power property |
| 12. Credit for qualified fuel cell and stationary microturbine power plant property |
| 13. Five-year cost recovery for certain energy property |
| 14. Special depreciation allowance for second generation biofuel plant property |
| 15. Energy efficient commercial buildings deduction |
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16. Incentives for alternative fuel and alternative fuel mixtures: a. Excise tax credits and outlay payments for alternative fuel b. Excise tax credits for alternative fuel mixtures |
| Other Provisions |
| 17. Credit for production of Indian coal |
| 18. Indian employment tax credit |
| 19. Discharge of indebtedness on principal residence excluded from gross income of individuals |
| 20. Premiums for mortgage insurance deductible as interest that is qualified residence interest |
| 21. Railroad track maintenance credit |
| 22. Mine rescue team training credit |
| 23. Qualified zone academy bonds: allocation of bond limitation |
| 24. Three-year depreciation for race horses two years old or younger |
| 25. Seven-year recovery period for motorsports entertainment complexes |
| 26. Accelerated depreciation for business property on an Indian reservation |
| 27. Election to expense advanced mine safety equipment |
| 28. Special expensing rules for certain film, television, and live theatrical productions |
| 29. Deduction allowable with respect to income attributable to domestic production activities in Puerto Rico |
| 30. Medical expense deduction: adjusted gross income (AGI) floor for individuals age 65 and older (and their spouses) remains at 7.5 percent |
| 31. Deduction for qualified tuition and related expenses |
| 32. Special rule for sales or dispositions to implement Federal Energy Regulatory Commission (“FERC”) or State electric restructuring policy |
| 33. Special rate for qualified timber gains |
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34. Empowerment zone tax incentives a. Designation of an empowerment zone and of additional empowerment zones b. Empowerment zone tax-exempt bonds c. Empowerment zone employment credit d. Increased expensing under sec. 179 e. Nonrecognition of gain on rollover of empowerment zone investments |
| 35. Temporary increase in limit on cover over of rum excise tax revenues (from $10.50 to $13.25 per proof gallon) to Puerto Rico and the Virgin Islands |
| 36. American Samoa economic development credit |
| Note: This list of provisions is drawn from List of Expiring Federal Tax Provisions, 2016-2025, Joint Committee on Taxation. |