On December 18, 2015, President Barack Obama signed into law legislation on spending and taxes, known as the Protecting Americans from Tax Hikes (“PATH”) Act of 2015. The PATH Act sets forth the appropriations provisions to fund the government for the 2016 fiscal year. Included with these appropriations provisions are tax provisions that extend 50 tax credits. Specifically, the PATH Act includes the following provisions relevant to industry participants:
- Low-Income Housing Tax Credits. The PATH Act makes permanent the previously temporary extension of the rule that the applicable percentage must be at least 9% for Low-Income Housing Tax Credits for non-federally subsidized new buildings. Previously, such non-federally subsidized new buildings were required to have had received an allocation of tax credits prior to January 1, 2015 in order for the 9% minimum to apply. The PATH Act strikes this January 1, 2015 limitation, thus making permanent the extension of the 9% minimum credit, which was otherwise set to be of limited use moving forward.
- New Markets Tax Credits. The PATH Act extends the allocation of New Markets Tax Credits through 2019. New Markets Tax Credits were previously only allocated through 2014. The amount of the annual New Markets Tax Credits limitation for each year through 2019 will be $3.5 billion. In addition, the PATH Act extends the carryover period for any unused New Markets Tax Credits. Previously, New Markets Tax Credits could not be carried over to any calendar year after 2019. The PATH Act replaces this limitation and instead extends the carryover period to 2024. These extensions make New Markets Tax Credits available for several additional years.
- Production and Investment Tax Credits. The PATH Act extends and modifies the use of certain tax credits with respect to facilities producing energy from renewable resources. The PATH Act phases down the renewable energy production tax credit over five years for facilities that begin construction before January 1, 2020. For projects that begin construction before January 1, 2017, there will be no reduction to the production tax credit. For projects that begin construction in 2017, the PATH Act provides for a 20% reduction to the production tax credit, followed by a 40% reduction for projects that begin construction in 2018 and a 60% reduction for projects that begin construction in 2019. The PATH Act phases down the election to treat certain wind facilities as energy property for purposes of the investment tax credit using a similar timeline based on the date that construction begins. The PATH Act also phases down the 30% renewable energy investment tax credit for facilities that begin construction before January 1, 2022.
- Bonus Depreciation. The PATH Act extends and modifies the rules pertaining to bonus depreciation. The applicable bonus depreciation percentage will be 50% for property placed in service during 2015, 2016 and 2017. The applicable bonus depreciation percentage will be 40% for property placed in service in 2018, and 30% for property placed in service in 2019. The PATH Act also continues to allow taxpayers to accelerate alternative minimum tax credits rather than use bonus depreciation. For the 2016 taxable year, the PATH Act modifies the rules relating to the use of alternative minimum tax credits in lieu of bonus depreciation by increasing the amount of unused tax credits that can be claimed instead of bonus depreciation.