This document outlines an agenda for a presentation on expiring tax provisions and the Affordable Care Act. The agenda includes sections on expiring tax provisions, the Affordable Care Act, and new tangible property regulations. Under expiring provisions, it lists over 50 individual tax credits, deductions, and other incentives that are set to expire. The section on the Affordable Care Act outlines the net investment income tax, additional Medicare tax, and the effects on businesses including employer responsibilities and the small business health care credit. The tangible property regulations section summarizes changes to the treatment of improvements, a new definition of property units, and an improved de minimis rule.

1. Presented by Sean Brewer

2. Agenda





Introduction
Expiring Tax
Provisions
Affordable Care Act
Tangible Property
Regs
Questions

7. Expiring Provisions
Credit for certain nonbusiness energy
properties
2) Alternative fuel vehicle refueling property
(non-hydrogen refueling property)
3) Credit for two- or three-wheeled plug-in
electric vehicles
4) Credit for health insurance costs of eligible
individuals
5) Second generation biofuel producer credit
(formerly cellulosic biofuel producer credit)
1)

8. Expiring Provisions
6)
Incentives for biodiesel and renewable diesel:
a) Income tax credits for biodiesel fuel, biodiesel used to
produce a qualified mixture, and small agri-biodiesel
producers
b) Income tax credits for renewable diesel used to
produce a qualified mixture
c) Excise tax credits and outlay payments for biodiesel
fuel mixtures
d) Excise tax credits and outlay payments for renewable
diesel fuel mixtures

9. Expiring Provisions
7)
8)
9)
Tax credit for research and experimentation
expenses
Determination of low-income housing credit
rate for credit allocations with respect to nonfederally subsidized buildings
Beginning-of-construction date for renewable
power facilities eligible to claim the electricity
production credit or investment credit in lieu
of the production credit

10. Expiring Provisions
10) Credit
for production of Indian coal
11) Indian employment tax credit
12) New markets tax credit
13) Credit for certain expenditures for maintaining
railroad tracks
14) Credit for construction of new energy efficient
homes
15) Credit for energy efficient appliances

11. Expiring Provisions
16) Mine
rescue team training credit
17) Employer wage credit for activated military
reservists
18) Work opportunity tax credit
19) Qualified zone academy bonds: allocation of
bond limitation
20) Deduction for certain expenses of elementary
education and secondary school teachers

12. Expiring Provisions
21) Discharge
of indebtness on principal
residence excluded from gross income of
individuals
22) Parity for exclusion from income for
employer-provided mass transit and parking
benefits
23) Treatment of military basic housing
allowances under low-income housing credit

13. Expiring Provisions
24) Premiums
for mortgage insurance
deductibles as interest that is qualified
residence interest
25) Deduction for State and local general sales
taxes
26) Three-year depreciation for race horses two
years old or younger
27) 15-year straight-line cost recovery for
qualified leasehold improvements, qualified
restaurant buildings and improvements, and
qualified retail improvements

14. Expiring Provisions
28) Seven-year
recovery period for motorsports
entertainment complexes
29) Accelerated depreciation for business
property on an Indian reservation
30) Additional first-year depreciation for 50
percent of basis of qualified property
31) Election to accelerate AMT credits in lieu of
additional first-year depreceation

15. Expiring Provisions
32) Special
depreciation allowance for second
generation biofuel plant property
33) Special rules for contributions of capital gain
real property made for conservation purposes
34) Enhanced charitable deduction for
contributions of food inventory
35) Increase in expensing to $500,000/$2,000,000
and expansion of definition of section 179
property

16. Expiring Provisions
36) Placed-in-service
date for partial expensing of
certain refinery property
37) Energy efficient commercial buildings
deduction
38) Election to expense advanced mine safety
equipment
39) Special expensing rules for certain film and
television productions

17. Expiring Provisions
Deduction allowable with respect to income
attributable to domestic production activities in
Puerto Rico
41) Deduction for qualified tuition and related
expenses
42) Tax-free distributions from individual retirement
plans for charitable purposes
43) Special rule for sales or dispositions to
implement Federal Energy Regulatory
Commission (“FERC”) or State electric
restructuring
40)

18. Expiring Provisions
44) Modification
of tax treatment of certain
payments to controlling exempt organizations
45) Treatment of certain dividends of regulated
investment companies (“RICs”)
46) RIC qualified investment entity treatment
under the Foreign Investment in Real
Property Tax Act (“FIRPTA”)
47) Exceptions under subpart F for active
financing income

19. Expiring Provisions
48) Look-through
treatment of payments between
related controlled foreign corporations under
the foreign personal holding company rules
49) Special rules for qualified small business
stock
50) Basis adjustment to stock of S corporations
making charitable contributions of property
51) Reduction in S corporation recognition period
for built-in gains tax

20. Expiring Provisions
52) Empowerment
zone tax incentives
a) Designation of an empowerment zone and of
b)
c)
d)
e)
f)
additional empowerment zones
Increased exclusion of gain (attributable to periods
through 12/31/18) on the sale of qualified business
stock of an empowerment zone business
Empowerment zone tax-exempt bonds
Empowerment zone employment credit
Increased expensing under sec. 179
Non-recognition of gain on rollover of
empowerment zone investments

21. Expiring Provisions
53) Incentives
for alternative fuel and alternative
fuel mixtures (other than liquefied hydrogen)
a) Excise tax credits and outlay payments for
alternative fuel
b) Excise tax credits for alternative fuel mixtures
54) Temporary
increase in limit on cover over of
rum excise tax revenues (from $10.50 to $13.25
per proof gallon) to Puerto Rico and the Virgin
Islands
55) American Samoa economic development credit

23. Jimmy Kimmel
Video
Six of One - Obamacare vs.
The Affordable Care Act

24. Affordable Care Act

Net Investment Tax 3.8% beginning in 2013
 Modified AGI limits
○ $250K married, $125K MFS, $250K qualifying
widower, 200K others
 Includes but not limited to interest, dividends, capital
gains, rental & royalty income, business income
 Does not include wages, unemployment, nonpassive
business income, social security, alimony, taxexempt interest

25. Affordable Care Act

Example 1: Threshold not surpassed
 Taxpayer, a single filer, has wages of $180,000
and $15,000 of dividends and capital gains.
Taxpayer’s modified adjusted gross income is
$195,000, which is less than the $200,000
statutory threshold. Taxpayer is not subject to the
Net Investment Income Tax.

26. Affordable Care Act

Example 2: Threshold surpassed
 Taxpayer, a single filer, has $180,000 of wages. Taxpayer
also received from a passive partnership interest, which
is not considered Net Investment Income. Taxpayer’s
modified adjusted gross income is $270,000.
 Taxpayer modified adjusted gross income exceeds the
threshold of $200,000 for single taxpayers by $70,000.
Taxpayer’s Net Investment Income is $90,000
 The net Investment Income Tax is based on the
lesser of $70,000 (the amount that Taxpayer’s
modified adjusted gross income exceeds threshold)
or $90,000 (Taxpayer’s Net Investment Income).
Taxpayer owes NIIT of $2,660 ($70,000 x 3.8%).

27. Affordable Care Act

Additional Medicare Tax 0.9%
 Wages (including noncash fringe benefits) &
SE income ($250K married, $125K MFS,
$200K others)

28. Affordable Care Act

Example 1: C, a single filer, has $130,000 in wages
and $145,000 in self-employment income.
 C’s wages are not in excess of the $200,000 threshold
for single filers, so C is not liable for Additional
Medicare Tax on these wages
 Before calculating the Additional Medicare Tax on selfemployment income, the $200,000 threshold for single
filers is reduced by C’s $130,000 in wages, resulting in
a reduced self-employment income threshold of
$70,000
 C is liable to pay Additional Medicare Tax on $75,000
of self-employment income ($145,000 in selfemployment income minus the reduced threshold of
$70,000).

29. Affordable Care Act

Example 2: D & E are married and file jointly. D
has $150,000 in wages and E has $175,000 in self
employment income.
 D’s wages are not in excess of the $250,000 threshold for
joint filers, so D and E are not liable for Additional
Medicare Tax on D’s wages
 Before calculating the Additional Medicare Tax on E’s
self-employment income, the $250,000 threshold for joint
filers is reduced by D’s $150,000 in wages resulting in a
reduced self-employment income threshold of $100,000.
 D & E are liable to pay Additional Medicare Tax on
$75,000 of self-employment in come ($175,000 in selfemployment income minus the reduced threshold of
$100,000

30. Affordable Care Act

Example 3: F, who is married and files separately,
has $175,000 in wages and $50,000 in selfemployment income
 F is liable to pay the Additional Medicare Tax on $50,000 of
his wages ($175,000 minus the $125,000 threshold for
married persons who file separately).
 Before calculating the Additional Medicare Tax on selfemployment income, the $125,000 threshold for married
persons who file separately is reduced by F’s $175,000 in
wages to $0 (reduced, but not below zero)
 F is liable to pay Additional Medicare Tax on $50,000 of
self-employment income ($50,000 in self-employment
minus the reduced threshold of $0).
 In total, F is liable to pay Additional Medicare Tax on
$100,000 ($50,000 of his wages and $50,000 of his selfemployment income)

31. Affordable Care Act

Employer responsibilities
 Employer responsible for withholding in excess of
$200,000 beginning in the pay period the
employee surpasses the threshold
 No employer match as with normal Medicare Tax
 Form 941 will be updated for the changes
 Subject to same rules for over/under withholding
as with other payroll taxes

32. Affordable Care Act

Other business effects
 Reporting on form W-2 for employer
provided health coverage (informational)
 Small business Health Care Credit (This is
been in effect)
○ Encourage small business to offer health care
○ Intended for low-income workers
○ Variable premiums paid
○ Variable levels of qualifying FTES (part-timers
add up to full-timers)

34. Tangible Property Regs
Regulations were finalized on
Friday, September 13th
 Standardizes what must be capitalized or
expensed
 Allows for disposition of a portion of an
asset
 Qualitative standards in all situations based
on all facts and circumstances

 Meaning taxpayer “facts and circumstances” will
trump other general considerations in most
cases

35. Tangible Property Regs

Unit of Property – Buildings
 Buildings: a boon for the cost segregation industry
 The building susters (Units of Property) that make up a building
are:
○
○
○
○
○
○
○
○
○
○
Building Structural Components
Heating, Ventilation and air conditioning
Plumbing systems
Electrical systems
All escalators
All elevators
Fire-protection and alarm systems
Security systems for protection of building and inhabitants
Gas distribution system
Other structural components (roof, walls, partitions, floors,
foundation, windows, doors, etc.)

36. Tangible Property Regs

Unit of Property – Buildings
 Taxpayers will be expected to capitalize building costs based on the
improvement or betterment (or increase in value) that it creates for the
particular building system– this means a lot more capitalization
 With more capitalization of 39 year property comes the obvious desire to
write off more of the old disposed property. It has been a common
argument to not capitalize a replaced building system or part (roof, HVAC)
because the old one is still depreciating and the new did not materially
enhance the value of the building overall. The building is no longer the
yardstick for measuring an improvement or betterment.
 Cost Segregation of a building becomes much more important over the
long haul to be able to defend costs disposed when new costs must be
capitalized. Also, it enables taxpayers to defend that a cost was not
material to a building component and should be expensed by being able
to demonstrate the actual total costs of the particular component
 Cost segregation studies are not cheap – still will need to do a costbenefit analysis for smaller buildings (if possible, have contractor break
out costs if cost-seg not an option)

37. Tangible Property Regs

Improvements
 Aside from costs expended for new tangible property
that must be capitalized, the Regs also focus heavily
on costs to improve property already owned.
 The Final regs retained the types of improvements
categories that must be capitalized and provide
extensive examples of how costs expended interact
with each. Improvements (and thus capitalization)
may result from Betterments, Adaptations, or
Restorations to a unit of property.
 Again, facts and circumstances appear to play a
large role in making determinations as to whether a
cost may be expensed

38. Tangible Property Regs

Improvements – Betterments
 Betterments are defined as amounts paid that:
○ Ameliorates a material condition or defect that
existed prior to acquisition or arose during
production of the unit of property, whether or not
the taxpayer was aware of the condition or defect
at the time,
○ Is for a material addition, including physical
enlargement, expansion, extension, or addition of
a major component to the unit of property or
material increase in capacity; OR
○ Is reasonably expected to materially increase
productivity, efficiency, strength, quality, or output
of the unit of property.

39. Tangible Property Regs

Improvements – Restorations
 Restorations are defined as amounts paid for:
○ Replacement of a component of a UOP for which the taxpayer
○
○
○
○
○
has properly deducted a loss for that component
Replacement of a component of a UOP for which the taxpayer
has properly taken into account the adjusted basis of the
component in realizing gain or loss resulting from sale or
exchange
Restoration of damage to a UOP for which the taxpayer is
required to take a basis adjustment as a result of a casualty loss
under section 165 or relating to a casualty event under section
165 (subject to limitations)
Returning the UOP to an ordinary, efficient operating condition if
property has deteriorated to a state of disrepair and is no longer
functional for its intended use
Rebuilding the UOP to like-new condition after the end of its
class life, OR
Replacing of a part or combination of parts that comprise a major
component or a substantial structural part of the unit of property

40. Tangible Property Regs

Improvements – Adaptations
 Adaptation does not come with the
extensive definition that betterment and
restoration have
○ In general, an amount is paid to adapt a unit
of property to a new or different use if the
adaptation is not consistent with the
taxpayer's ordinary use of the unit of property
at the time originally placed in service by the
taxpayer.

41. Tangible Property Regs

The New & Improved De Minimis Rule
 IRS received a “significant number” of
comments and sought to address what
taxpayers apparently thought would be overly
burdensome rules.
 The revised rules offer taxpayers with an AFS a
simple ceiling of $5,000 per invoice, or per item
as substantiated by the invoice.
○ Must treat the item as an expense on the AFS in
accordance with its written procedures
○ Still applies only to audited financials, not
reviews, not compilations

42. Tangible Property Regs

The New & Improved De Minimis Rule
 This time around, the IRS finally recognized that
taxpayers without an AFS exist also
 Taxpayers without an AFS now have a de
minimis rule of $500 per invoice or per item as
substantiated by the invoice
○ Non-AFS taxpayers are still required to have a
written capitalization policy in place at the
beginning of the tax year in which they treat the
costs as expenses for non-tax purposes
○ Must follow your capitalization policy (this may
require some training of the front-line folks
inputting transactions into your system)

43. Tangible Property Regs

The New & Improved De Minimis Rule
 De minimis rules may not be used for inventory, land, or rotable/spare parts that
taxpayer elects to capitalize or use the optional method for
 Additional acquisition and production costs (delivery fees, installation services,
etc.) are not included in the cost if not reflected on the invoice, but are included if
shown on the same invoice.
 Sales of items expensed are not capital assets or 1231 property (ordinary
income)
 Anti-abuse rule in place
○ You cannot manipulate your invoices to componentize property to expense it
(purchase a vehicle engine, frame, interior, tires, trailer, etc. in separate invoices
will be considered abuse)
○ If the cost of the overall UOP is larger than the de minimis (outside of peripheral
costs such as delivery, installation charges), it should be capitalized (i.e. –
constructing a large item like a storage building)
 Election is made yearly by attaching a statement to the return (this will eat in to
the 16.5 minutes the IRS says it will take you to comply but may also avoid
having to file for change in accounting method)
 Preamble states that examiners are not to revise their materiality thresholds
based on the de minimis amounts. If taxpayer and examiner agree a higher
amount is acceptable (yeah, right) it may be used. For large businesses without
an AFS (low/no debt companies), this may be only option.

44. Tangible Property Regs

Example 1: De Minimis Safe Harbor – Taxpayer without
AFS
 In Year 1, B purchases 10 computers at $600 each for a total
cost of $6,000 as indicated by the invoice
○ Assume each computer is a unit of property under § 1.263(a)-
3(e).
 B does not have an Applicable Financial Statement.
 B has accounting procedures in place at the beginning of Year 1
to expense amounts paid for property costing less than $1,000
and B treats these amounts paid for the computers as an
expense on its books and records
 The amounts paid for the printers do not meet the requirements
for the de minimis safe harbor under paragraph (f)(1)(ii) of this
Section because the amount paid for the property exceeds $500
per invoice (or per item as sustained by the invoice).
○ B may not apply de minimis safe harbor election to the amounts
paid for the 10 computers under paragraph (f)(1) of this Section

45. Tangible Property Regs

Example 2: De Minimis Safe Harbor – Taxpayer with AFS
 C is a member of a consolidated group for Federal income tax
purposes.
○ C’s financial results are reported on the consolidated applicable financial statements
for the affiliated group.
○ C’s affiliated group has a written accounting policy at the beginning of Year 1, which is
followed by C, to expense amounts paid for property costing $5,000 or less.
 In Year 1, C pays $6,250,000 to purchase 1,250 computers at
$5,000 each.
○ C receives an invoice from its supplier indicating the total amount due ($6,250,000)
and the price per item ($5,000).
○ Assume that each computer is a unit of property under § 1.263(a)-3(e).
 The amounts paid for the computers meet the requirements for the
de minimis safe harbor.
○ If C elects to apply de minimis safe harbor under this paragraph (f) for Year 1, C may
not capitalize the amounts paid for the 1,250 computers or any amounts meeting the
criteria for the de minimis safe harbor under paragraph (f)(1) of this Section.
○ Instead, under paragraph (f)(3)(iv), C may deduct these amounts under § 1.162-1 in
the taxable year the amounts are paid provided the amounts otherwise constitute
deductible ordinary and necessary expenses incurred in carrying on a trade or
business.

47. Contact Information

Sean Brewer
 865-769-1649
 sbrewer@pughcpas.com