CAA: Business Tax Breaks To Be Thankful For

The Consolidated Appropriations Act (CAA) was signed into law on December 27, 2020.  And when you operate a business, you have a variety of tax breaks available.

The recently enacted Consolidated Appropriations Act extends and expands some of the breaks. We bring the following selection of them to your attention as a tax-strategy buffet.

Business Meals Provided by Restaurants

You can deduct 100 percent of your dine-in and take-out business meals that are provided by restaurants.  Under the new law, you may deduct 100 percent of the cost of business-related food and beverages provided by restaurants in 2021 and 2022.  The “provided by” language ensures that this break applies equally to take-out and sit-down meals.

Work Opportunity Tax Credit

For hiring members of 10 targeted groups, you can obtain the work opportunity tax credit for first-year wages through 2025.  Before the CAA, the WOTC applied to first-year wages paid to qualifying employees who were hired before 2021.

New Markets Credit Extended for Five Years

You can now qualify for the 39 percent new markets tax credit for investments through 2025.  The credit equals 39 percent of a taxpayer’s capital investment in a qualified entity that commits to the rules of the new markets tax credit program.

Some Empowerment Zone Breaks Extended for Five Years (Others Allowed to Expire)

The empowerment zone tax breaks that were scheduled to expire on December 31, 2020, are extended through 2025.  But the new law terminates, for 2021 and later, both (a) the enhanced first-year depreciation rules and (b) the capital gains tax deferral break.  You can claim special federal income tax incentives in census tracts designated as empowerment zones. In these zones, taxpayers are potentially eligible for 20 percent wage credits, enhanced first-year depreciation deductions, tax-exempt bond financing, and deferral of federal capital gains taxes when qualifying assets are sold and sales proceeds are reinvested in other qualifying assets.

Tax-Free Treatment for Employer Section 127 Plan Payments Toward Employee Student Loans Extended

Employers may continue through 2025 making Section 127 education plan payments that cover student loan principal and interest.  And this is up to the plan maximum of $5,250.

Liberalized Depreciation Rule for Residential Rental Property Owned by Electing Real Estate Businesses

For residential rental property that you placed in service before 2018 and were depreciating over 40 years under the straight-line method, you can now use 30 years if you elect out of the Tax Cuts and Jobs Act business interest expense limitations.

More Flexible Rules for Farming Losses

Farmers may elect a two-year net operating loss carryback rather than the five-year carryback retroactively as if this change were in the original CARES Act.  The new law also allows farmers that previously waived the carryback privilege to revoke the waiver. These changes apply retroactively as if they were included in the CARES Act on Day One.

Deduction for Energy-Efficient Commercial Buildings Made Permanent

Commercial building owners can claim deductions for energy-efficient improvements.  Including energy-efficient improvements to lighting, heating, cooling, ventilation, and hot water systems and to building envelopes. The write-off equals $1.80 per square foot, or $0.60 per square foot if certain subsystems meet energy-efficiency standards but the entire building does not.  The $1.80 per-square-foot or $0.60 per-square-foot deductions for energy-efficient improvements to commercial buildings are now permanent. And the new law adds an inflation-adjustment feature for tax years beginning in 2021 and later.

Tax Impact of CARES Act Loan Forgiveness and Financial Assistance Favorably Clarified

Under CAA, Small Business Administration Economic Injury Disaster Loan advances and loan repayment assistance are not taxable, and you suffer no tax attribute reductions as a result of the tax-free monies.

Credit for Energy-Efficient Manufactured Homes Extended

Manufacturers of residential homes can claim a credit of $1,000 or $2,000 for homes that meet applicable energy-efficiency standards through 2021.

Credit for Alternative-Fuel Vehicle Refueling Equipment Extended

Your business can claim a business federal income tax credit for up to 30 percent of the cost of installing non-hydrogen alternative-fuel vehicle refueling equipment (say, for your employees’ electric vehicles) through 2021.

Credit for Fuel Cell Vehicles Extended

Your business can claim a federal income tax credit for buying vehicles propelled by chemically combining oxygen with hydrogen to create electricity, through 2021.

• The base credit is $4,000 for vehicles weighing 8,500 pounds or less.
• Heavier vehicles can qualify for bigger credits of up to $40,000.
• An additional $1,000 to $4,000 credit is available to cars and light trucks to the extent their fuel economy meets federal standards.

Seven-Year Depreciation for Motorsports Entertainment Complexes Extended for Five Years

The CAA extends the seven-year recovery period to cover motorsports entertainment complex property placed in service through 2025.

First-Year Expensing for Entertainment Productions Extended for Five Years

You can elect to claim the first-year write-off for the cost of qualified film, television, and theatrical productions commencing before 2025.  This is subject to a $15 million per-production limit or a $20 million limit for productions in certain disadvantaged areas.

Three-Year Depreciation for Young Racehorses Extended

For racehorses that are no more than two years old that you place in service during 2021, you may use three-year depreciation.

Takeaways

You have to admire the width and breadth of tax breaks available to businesses in the CAA, and as a reader of our blogs, you know this is simply a tiny snapshot of tax breaks that are available.  I am still reading and studying all these changes and will do a follow-up to this very soon.  And, you do have to admire the opportunities that the tax law contains to help businesses. If you would like my help with any of the above, please don’t hesitate to call me on my direct line at 509-543-7600 or send a request HERE.

March 2021

This blog does not provide legal, financial, accounting, or tax advice. This blog provides practical information on the subject matter. The content on this blog is “as is” and carries no warranties. TaxMedics does not warrant or guarantee the accuracy, reliability, and completeness of the content on this blog. Please contact us directly to discuss how this information may be used based on your actual facts and circumstances.