ENR: Tax Reforms a Big Deal for Small, Midsized Builders

I spoke with John Gregerson of the Engineering News-Record about the impact of the Tax Cuts and Jobs Act on the construction industry:

Following numerous proposals, TCJA eventually implemented a 20% tax deduction on qualified business income pass-throughs. Those results could prove significant, given that “pass-throughs account for up to 75% of U.S. builders,” notes Liam Donovan, a [Principal at Bracewell LLP and consultant] for Washington, D.C.-based Associated Builders and Contractors.

But the deduction cannot exceed the greater of 50% of the W2 wages of the business or 25% of W2 wages, in addition to 2.5% of the cost of property used in the business, Donovan says. When the dust settles, the provision reduces the effective top tax rate on business income to 29.6% for many smaller firms.

For many industry firms, expiration of the pass-through deduction in 2026 is a potential concern.

“TCJA implemented several sunset provisions on individual tax rates, the pass-through deduction included, to limit the scope of the legislation to $1.5 trillion,” Donovan says. “The administration has indicated it would like to extend the pass-through deduction, but, in the meantime, the provision creates uncertainty. As a result, some pass-throughs may want to run the numbers to determine whether it makes sense to reorganize as C corporations, given the permanency of their 21% tax rate.”

You can read the full piece here.

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Law360: Budget Bill Contains Energy Tax Credit Boon

I spoke with Keith Goldberg of Law360 about the Bipartisan Budget Act of 2018 and its impact on renewable energy:

The orphaned credits were included in sprawling tax overhaul legislation last year, but ultimately left out of the version signed into law. But now, projects including fuel cells, combined heat and power and small-scale wind will regain their ITC eligibility and be subject to a phaseout schedule similar to that of solar projects.

“This is the end of a two-year saga,” said Liam Donovan, a lobbyist and principal with Bracewell LLP’s policy resolution group. “It gets those [orphaned credits] off the table as extenders going forward and it’s a model of how to wind these credits down.”

The budget bill also slashes the amount of carbon emissions that facilities have to capture in order to claim the credit from 500,000 metric tons per year to 100,000 metric tons per year, which Harrell said will encourage industrial facilities and other smaller emitters to invest in CCS technologies.

One factor working in favor of pumped-up CCS credits making it into the final budget bill was their bipartisan support, from coal country Republicans to Democratic climate change hawks.

“Any time you can get Sheldon Whitehouse [D-R.I.] and Shelley Moore Capito [R-W.Va.] on the same page, it’s an interesting mix,” Donovan said.

ew ITC guidance is included on an updated priority guidance plan put out on Wednesday by the U.S. Department of Treasury that outlines projects it hopes to complete by June 30, 2018. But leading that priority guidance plan is Treasury’s implementation of the tax overhaul bill, which has Donovan wondering if ITC guidance will get pushed aside for the time being.

“My hunch is that it will be behind more immediate and urgent priorities,” Donovan said.

You can read the full piece here.

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BNA: Senate’s Alternative Minimum Tax Creates Friction With House

I spoke to Laura Davison of Bloomberg BNA about the implications of the Senate’s 11th hour reinstatement of the AMT:

Curbing the state and local tax deduction while keeping the AMT creates an interesting interaction because many AMT payers are the same people who could have large SALT write-offs. SALT isn’t deductible under the AMT, but lawmakers had used the argument that repealing the AMT would lessen the pain of restricting SALT deductions, said Liam Donovan, a tax lobbyist at Bracewell LLP in Washington.

“This makes it harder for the medicine to go down,” he said.

Read the full piece here.

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