On December 18, Congress completed action, and President Obama signed bipartisan legislation (H.R. 2029), that funds the federal government through September 30, 2016 and extends dozens of expired tax incentives. The Omnibus bill—a term used in Washington to refer to legislation that consolidates a diverse array of items into one piece of legislation—is a major victory for the lumber and building material industry.
Despite some teeth gnashing from both Republicans and Democrats over the $1.1 trillion cost and a few provisions left out of the final agreement, both the House of Representatives (316-113) and Senate (66-35) overwhelmingly approved the legislation.
Among the highlights, the bill includes the permanent extension of the Section 179 deduction, multi-year extensions of tax incentives for bonus depreciation and energy efficient improvements, suspension of the Health Insurance Tax (HIT), and continued relief from commercial trucking rules. In addition, a modification to the H-2B Visa program should allow more foreign workers to perform construction work on a temporary basis.
Most notably, the bill permanently extends the limit on the Section 179 deduction to $500,000. Earlier this year in a survey of NLBMDA members, 58% said they used the Section 179 deduction that benefits small and medium-sized businesses.
Section 179 allows businesses to deduct the full purchase price of qualifying equipment and/or software purchased or financed during the tax year. This means if a company buys or leases a piece of qualifying equipment it can deduct the full purchase price from its gross income.
Another tax incentive geared toward small and medium-sized business included in the Omnibus was accelerated bonus depreciation. As part of the agreement, bonus depreciation has been extended through 2019. For 2015-2017, it allows business a 50% bonus depreciation for property placed in service. The amount phases down to 40% in 2018 and 30% in 2019.
Eligible property under bonus depreciation includes newly constructed or original use property with a recovery period of 20 years or less, qualified leasehold improvements, computer software, and water utility property. Unlike the Section 179 deduction, only new property is eligible for bonus depreciation. In addition, businesses do not need net income to take bonus depreciation deductions.
Consumers and businesses that make energy efficient improvements will also see benefits from the year-end legislation. It extends the tax credit to homeowners for energy efficient improvements for existing residential homes (25C), tax credit to builders and developers for energy efficient improvements to new or substantially-renovated homes (45L), and a tax deduction to builders and developers for energy efficient improvements to new and substantially-renovated commercial buildings (179D).
The energy efficiency tax incentives had expired at the end of 2014. However, as part of the Omnibus the tax incentives have been made retroactive to the beginning of 2015 and remain in effect through 2016.
There is also good news with respect to health care, which includes a one-year suspension of the Health Insurance Tax (HIT) in 2017. The tax is levied annually on fully-insured health care plans that are offered by many small and medium-size businesses. In 2015 and 2016, the federal government is expected to collect $22.6 billion from the HIT.
According to data from the U.S. Department of Health and Human Services, 82% of large companies (500 or more employees) offer a self-insured health care plan. However, only 26% of mid-size companies (101 to 499 employees) offer a self-insured health care plan and it is a mere 13% for small companies (less than 100 employees).
Although the suspension of the tax will not fix all the problems with the Affordable Care Act, it is a positive development in helping control health care costs. NLBMDA is also a part of the Stop the HIT Coalition (stopthehit.com) working to repeal the tax.
Two other provisions of note in the Omnibus pertain to commercial trucking regulations and the H-2B Visa program. First, it continues the suspension of the 34-hour restart requirement included in the Department of Transportation’s (DOT) Hours of Service (HOS) rules regulating the amount of time a commercial truck driver can spend behind the wheel. Second, there will be an increase in the number of H-2B visas for foreign workers seeking seasonal, non-agricultural jobs, in areas such as construction, thanks to a change in how eligible workers are counted against the overall annual cap of 66,000.
NLBMDA is pleased that the Omnibus will benefit lumber dealers. This legislative victory was thanks in part to efforts by the government relations team and our dealer members who continue to remind lawmakers about the need for common-sense policies that will keep the economy on a path of sustained growth.