Tax Relief Act Extends Treasury Department Cash Grant Program for One Year
On Friday, Dec. 17, 2010, President Obama signed into law the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (the “Act”). The Act extends many tax relief provisions for individuals and businesses. Highlights of the Act for the energy sector are summarized below.
Individual income tax rate reductions
For 2011 and 2012, the top individual regular income tax rate will remain 35%. Under the Act, the individual regular income tax rates will remain 10%, 15%, 25%, 28%, 33%, and 35% through 2012 (and beginning in 2011, would have otherwise been 15%, 28%, 31%, 36%, and 39.6%).
Reduced rates on qualified dividend income and long-term capital gains for individuals
Qualified dividend income and net capital gain (the excess of net long-term capital gain over net short-term capital loss) of individuals will continue to be taxed at the maximum rate of 15% through 2012. Beginning in 2011, dividends would have otherwise been taxed at ordinary income tax rates and net capital gain would have been taxed at the maximum rate of 20% for individuals.
Extension of bonus depreciation and temporary 100% expensing
The Act extends and expands the additional first-year bonus depreciation deduction to 100% of the cost of qualified property placed in service after Sept. 8, 2010, and before Jan. 1, 2012 (before Jan. 1, 2013, for certain longer-lived property), and provides for a 50% additional first-year bonus depreciation deduction for qualified property placed in service after Dec. 31, 2011, and before Jan. 1, 2013 (after Dec. 31, 2012, and before Jan. 1, 2014, for certain longer-lived property).
Treasury cash grant program in lieu of production tax credits and energy credits
The Act extends the Treasury Department cash grant program for specified energy property in lieu of tax credits by one year. As extended, eligible property must either be placed in service in 2009, 2010, or 2011, or its construction must begin during 2009, 2010, or 2011, and it must be placed in service before 2013 (wind), 2014 (closed-loop biomass, open-loop biomass, geothermal (under Code Section 45), municipal solid waste, qualified hydropower, and marine and hydrokinetic), or 2017 (geothermal under Code Section 48, microturbine, combined heat & power, solar (for 30% payment), fuel cells, and small wind).
Other energy provisions
• Incentives for biodiesel and renewable diesel (Code Sections 40A, 6426 and 6427)
The Act extends for two years (through Dec. 31, 2011), the income tax credit, excise tax credit and payment provisions for biodiesel and renewable diesel. The Treasury Department will issue guidance on this provision in light of the retroactive nature of the extension (these provisions expired on Dec. 31, 2009).
• Credit for refined coal facilities (Code Section 45)
The Act extends for two years (through Dec. 31, 2011), the placed-in-service period for new refined coal facilities other than refined coal facilities that produce steel industry fuel.
• New energy-efficient home credit (Code Section 45L)
The Act extends for two years (through Dec. 31, 2011), the credit to eligible contractors for each qualified new energy-efficient home constructed by the contractor and acquired for use as a residence.
• Excise tax credits and outlay payments for alternative fuel and alternative fuel mixtures (Code Sections 6426 and 6427)
The Act extends for two years (through Dec. 31, 2011), the alternative fuel credit, alternative fuel mixture credit and related payment provisions, but excludes fuel derived from the production of paper or pulp. The Treasury Department will issue guidance on this provision in light of the retroactive nature of the extension (these provisions expired on Dec. 31, 2009).
• Special rule for sales or dispositions to implement FERC or state electric restructuring policy for qualified electric utilities (Code Section 451(i))
The Act extends for two years (for sales through Dec. 31, 2011), the election, available for sales of property used by a qualified electric utility to an independent transmission company, to recognize gain from such sale ratably over an 8-year period if the amount realized is used to buy exempt utility property within the applicable period.
• Suspension of limitation on percentage depletion for oil and gas from marginal wells (Code Section 613A)
The Act extends for two years (to apply to tax years beginning before Jan. 1, 2012) the suspension of the 100-percent-net-income limitation for marginal production.
• Extension of provisions related to alcohol used as a fuel (Code Sections 40, 6426 and 6427)
The Act extends for one year the per-gallon tax incentives for the sale, use and production of alcohol fuel and alcohol fuel mixtures.
• Energy-efficient appliance credit (Code Section 45M)
The Act extends for one year (for appliances manufactured in 2011), the credit allowed for the eligible production of certain energy-efficient dishwashers, clothes washers and refrigerators, and changes the aggregate credit limitation to allow up to $25 million in credits to be claimed per manufacturer. The Act also changes the 2% gross receipts limitation on the credit to 4%, and modifies the standards and credit amounts.
• Credit for nonbusiness energy property (Code Section 25C)
The Act extends for one year the credit for the purchase of qualified energy-efficiency improvements to the envelope of existing homes, and the purchase of specified qualified energy-efficient property (e.g., qualifying furnaces and hot water boilers), but uses the credit structure and rates that existed before enactment of the American Recovery and Reinvestment Act of 2009 (ARRA). The Act reinstates the rule that expenditures from subsidized energy financing are not qualifying expenditures, and restores certain efficiency standards to their pre-ARRA levels. The Act also provides that windows, skylights and doors that meet the Energy Star standards are qualified improvements.
• Credit for alternative fuel vehicle refueling property (Code Section 30C)
The Act extends through 2011, the 30% credit for alternative fuel refueling property, subject to the pre-2009 maximum credit amount. The credit for hydrogen refueling property continues under present law through 2014.