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Tax Provisions and Extenders in the Consolidated Appropriations Act of 2021

AAFCPAs would like to make clients aware, on December 21, 2020, Congress passed the Consolidated Appropriations Act, 2021 (The Act), a $2.3 trillion spending bill.  Among the stimulus package and other COVID-19 relief provisions, the Act contained several tax provisions and extenders.

AAFCPAs has highlighted below some of the most impactful tax provisions and extenders present in The Act.

Noteworthy Temporary Tax Benefits

Expanded Business Meal Deductions

The Act temporarily allows for a 100% business expense deduction for meals or beverages, if they are provided by a restaurant. This full business deduction applies to amounts paid or incurred after December 31, 2020 and before January 1, 2023.  Theoretically, “provided by a restaurant” should include take-out.

Increased Charitable Deduction

For 2020 and now 2021, taxpayers with cash contributions to public charities can deduct a maximum $300 ($600 joint) if using the standard deduction or deduct an amount up to 100% of their adjusted gross income if itemizing.

Earned Income Tax Credit

This is a special election to use prior year income to compute the 2020 Earned Income Credit. Allowing individuals with lower income in 2020, presumably due to COVID, to not suffer the loss in value of this credit.

Employee Retention Credit Amendments and Extension

Read more about these notable changes outlined in a previous blog: Employee Retention Credit Updates, Expanded Eligibility 

Provisions Made Permanent

The Act made the following provisions permanent:

  • Reduction in medical expense deduction floor: Applicable to taxable years beginning after December 31, 2020, individuals can deduct unreimbursed medical expenses that now exceed 7.5% of adjusted gross income, down from the traditional 10% floor;
  • Energy efficient commercial buildings deduction: Deductions for businesses with energy efficient commercial buildings under Section 179D is now permanent, and it will be indexed for inflation;
  • Benefits provided to volunteer firefighters and emergency medical responders: Gross income exclusion for certain benefits provided to volunteer firefighters and emergency medical responders;
  • Transition from deduction for qualified tuition and related expenses to increased income limitation on lifetime learning credit: Effective for tax years beginning after December 31, 2020, the phaseout limits on the lifetime learning credit are increased;
  • Railroad track maintenance credit;
  • Certain provisions related to beer, wine, and distilled spirits;
  • Refunds in lieu of reduced rates for certain craft beverages produced outside the United States;
  • Reduced rates not allowed for smuggled or illegally produced beer, wine, and spirits;
  • Minimum processing requirements for reduced distilled spirits rates; and
  • Modification of single taxpayer rules.

Extension Until January 1, 2026

The Act extended the following provisions until January 1, 2026:

  • Look-through rule for related controlled foreign corporations;
  • New markets tax credit;
  • Work opportunity credit;
  • Exclusion from gross income of discharge of qualified principal residence indebtedness;
  • 7-year recovery period for motorsports entertainment complexes;
  • Expensing rules for certain productions;
  • Oil spill liability trust fund rate;
  • Empowerment zone tax incentives;
  • Employer credit for paid family and medical leave;
  • Exclusion for certain employer payments of student loans; and
  • Extension of carbon oxide sequestration credit.

Extension of Various Other Provisions

The Act extended the following provisions to differing durations:

  • Credit for electricity produced from certain renewable resources;
  • Extension and phaseout of energy credit;
  • Treatment of mortgage insurance premiums as qualified residence interest;
  • Credit for health insurance costs of eligible individuals;
  • Indian employment credit;
  • Mine rescue team training credit;
  • Classification of certain racehorses as 3-year property;
  • Accelerated depreciation for business property on Indian reservations;
  • American Samoa economic development credit;
  • Second generation biofuel producer credit;
  • Nonbusiness energy property;
  • Qualified fuel cell motor vehicles;
  • Alternative fuel refueling property credit;
  • 2-wheeled plug-in electric vehicle credit;
  • Production credit for Indian coal facilities;
  • Energy efficient homes credit;
  • Extension of excise tax credits relating to alternative fuels;
  • Extension of residential energy-efficient property credit and inclusion of biomass fuel property expenditures; and
  • Black lung disability trust fund excise tax

What do we advise?

We have outlined some of the most notable credits included in The Act, however this is not an exhaustive list. Please contact your AAFCPAs Partner to discuss how provisions in The Act may impact your short and long term tax planning strategy.

As always, AAFCPAs will continue to monitor COVID-19 related developments and keep you informed as significant changes occur or provisions become clarified.

If you have any questions please contact: Christopher Consoletti, Esq. at 774.512.4180, cconsoletti@nullaafcpa.com; Richard Weiner, CPA, MST at 774.512.4078, rweiner@nullaafcpa.com; or your AAFCPAs Partner.

About the Authors

Chris Consoletti
Chris, in conjunction with AAFCPAs’ multi-disciplinary team of CPAs, investment & business advisors, provides effective tax planning and research, tax compliance, charitable planning, and asset protection solutions for trusts & estates, corporations and partnerships. Chris provides clients with corporate law analysis and recommendations related to entity formation, management and board structure, executive compensation, limited liability protection, and the applicable laws of relevant states and jurisdictions. He evaluates and assesses opportunities and risks associated with complicated tax challenges or controversies.
Richard Weiner CPA
Rich has over 30 years of broad tax experience with a specialty in tax planning and consulting for private and publicly-held businesses. Rich has specific expertise in the Software, Bio-Technology, Medical Device, Life Science, Manufacturing, Retail, Professional Service and Publishing industries, as well as U.S. aspects of international taxation. He works extensively with European companies expanding into the U.S. market. Additional areas of focus include companies and stockholders in transition, including structuring of and planning for Mergers & Acquisitions, planning for changes in ownership and management, and adoption of tax methodologies with a view toward the long term. He is well known in his field and is a frequent speaker on a variety of tax related topics.