BACKGROUND RELATED TO CERTAIN TEMPORARY

AND DISASTER RELIEF TAX PROVISIONS

Prepared by the Staff

of the

JOINT COMMITTEE ON TAXATION

May 16, 2019

JCX-22R-19
i

CONTENTS

Page

INTRODUCTION .......................................................................................................................... 1

A. Temporary Tax Policy and Uncertainty.............................................................................. 2

B. Employment and Community Development ...................................................................... 4

1. Indian employment tax credit (sec. 45A)...................................................................... 5

2. New markets tax credit (sec. 45D)................................................................................ 6

3. Mine rescue team training credit (sec. 45N)................................................................. 6

4. Work opportunity tax credit (sec. 51)........................................................................... 7

5. Empowerment zone tax incentives (secs. 1391(d)(1)(A)(i) and (h)(2), 1394, 1396, 

1397A, and 1397B)....................................................................................................... 8

6. American Samoa economic development credit (sec. 119 of Pub. L. No. 109-432,

as amended) .................................................................................................................. 9

C. Health Tax......................................................................................................................... 11

1. Credit for health insurance costs of eligible individuals (sec. 35).............................. 11

2. Employer credit for paid family and medical leave (sec. 45S)................................... 12

3. Medical expense deduction: 7.5 percent adjusted gross income (“AGI”) floor 

(sec. 213)..................................................................................................................... 12

4. Black Lung Disability Trust Fund: increase in amount of excise tax on coal 

(sec. 4121)................................................................................................................... 13

5. Medical device excise tax (sec. 4191) ........................................................................ 13

6. Annual fee on health insurance providers (sec. 9010 of the Patient Protection and 

Affordable Care Act) .................................................................................................. 14

7. Specified health insurance policy fee (sec. 4375)....................................................... 15

8. Self-insured health plan fee (sec. 4376)...................................................................... 15

D. Energy............................................................................................................................... 17

1. Credit for certain nonbusiness energy property (sec. 25C)......................................... 18

2. Alternative motor vehicle credit for qualified fuel cell motor vehicles

(sec. 30B(b)) ............................................................................................................... 18

3. Credit for alternative fuel vehicle refueling property (sec. 30C)................................ 19

4. Credit for two-wheeled plug-in electric vehicles (sec. 30D)...................................... 19

5. Second generation biofuel credit (formerly known as the “cellulosic biofuel

producer credit”) (sec. 40(b)(6))................................................................................. 20

6. Incentives for biodiesel and renewable diesel (secs. 40A, 6426(c), and 6427(e))...... 20

7. Credit for electricity produced from certain renewable resources (secs. 45 and 

48(a)(5))...................................................................................................................... 22

8. Credit for production of Indian coal (sec. 45(e)(10)) ................................................. 23

9. Credit for construction of new energy efficient homes (sec. 45L) ............................. 23

10. Special depreciation allowance for second generation biofuel plant property 

(sec. 168(l))................................................................................................................. 24
ii

11. Special rule for sales or dispositions to implement Federal Energy Regulatory 

Commission (“FERC”) or State electric restructuring policy (sec. 451(k))............... 24

12. Incentives for alternative fuel and alternative fuel mixtures (secs. 6426(d) and (e),

and 6427(e))................................................................................................................ 25

E. Cost Recovery................................................................................................................... 27

1. Credit for certain expenditures for maintaining railroad tracks (sec. 45G)................ 28

2. Three-year depreciation for race horses two years old or younger 

(sec. 168(e)(3)(A)(i)) .................................................................................................. 29

3. Seven-year recovery period for motorsports entertainment complexes 

(sec. 168(e)(3)(C)(ii) and (i)(15)) ............................................................................... 30

4. Accelerated depreciation for business property on an Indian reservation

(sec. 168(j))................................................................................................................. 31

5. Energy efficient commercial buildings deduction (sec. 179D) .................................. 32

6. Election to expense advanced mine safety equipment (sec. 179E) ............................ 33

7. Expensing of certain qualified film and television and live theatrical productions 

(sec. 181)..................................................................................................................... 34

F. Individual, Excise Taxes, and Other Temporary Policies................................................. 36

1. Discharge of indebtedness on principal residence excluded from gross income of 

individuals (sec. 108(a)(1)(E)).................................................................................... 36

2. Premiums for mortgage insurance deductible as interest that is qualified residence 

interest (sec. 163(h)(3)(E)).......................................................................................... 36

3. Above-the-line deduction for qualified tuition and related expenses (sec. 222) ........ 37

4. Look-through treatment of payments between related controlled foreign

corporations under the foreign personal holding company rules

(sec. 954(c)(6)(C)) ...................................................................................................... 37

5. Excise taxes on beer, wine, and distilled spirits.......................................................... 38

6. Oil Spill Liability Trust Fund financing rate (sec. 4611)............................................ 40

G. Disaster Tax Relief ........................................................................................................... 42

1. Special disaster-related rules for use of retirement funds (secs. 72(t), 165,

401-403, 408, 457, and 3405)..................................................................................... 44

2. Employee retention credit for employers affected by qualified disasters (sec. 38).... 45

3. Other disaster-related tax relief provisions................................................................. 46
1

INTRODUCTION

The Senate Committee on Finance has convened taskforces to consider certain Federal 

tax provisions that expired in 2017 or 2018, or that will expire by December 31, 2019, and 

certain temporary provisions related to disaster relief. This document,1 prepared by the staff of 

the Joint Committee on Taxation, provides an overview of those Federal tax provisions.2 This

document describes the expired and expiring provisions in light of the December 2017 enactment

of an Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution 

on the Budget for Fiscal Year 2018 (the “2017 Tax Act”).3 All the provisions discussed herein 

that expired in 2017 were scheduled to expire in 2016 and were extended through 2017 by the 

enactment in February 2018 of the Bipartisan Budget Act of 2018 (the “Bipartisan Budget 

Act”).

4

 

The 2017 Tax Act repealed provisions of law that included two now-expired provisions. 

A provision treating Puerto Rico as part of the United States for purposes of the domestic 

production activities deduction under section 1995 expired in 2017. Similarly, a maximum 23.8-

percent tax rate for qualified timber gain of corporations under section 1201 expired in 2017.6 

For taxable years beginning after December 31, 2017, the 2017 Tax Act repealed sections 199 

and 1201 in their entirety. For that reason, those two provisions are not included in this 

document. 

 1

 This document may be cited as follows: Joint Committee on Taxation, Background Related to Certain 

Temporary and Disaster Relief Tax Provisions (JCX-22R-19), May 16, 2019. This document can be found on the 

Joint Committee on Taxation website at www.jct.gov. 

2

 Certain provisions terminate according to a taxpayer’s taxable year and not according to a calendar year. 

Thus, the expiration dates of such provisions may differ with respect to fiscal-year taxpayers.

3

 Pub. L. No. 115-97. 

4

 Pub. L. No. 115-123. 

5

 Unless otherwise stated, all section references are to the Internal Revenue Code of 1986, as amended (the 

“Code”). 

6

 The 2017 Tax Act generally reduced the top marginal corporate income tax rate from 35 percent to 

21 percent.
2

A. Temporary Tax Policy and Uncertainty

If all future outcomes were certain, individuals would make choices that are different 

from those they make in the real world where they must reckon with uncertainty. For example, 

in such a world, insurance contracts would be neither offered nor purchased. Uncertainty 

generally reduces individual welfare and imposes costs. As a general matter, the greater the 

uncertainty, the greater the economic cost. 

Because public policy affects economic choices that individuals make, uncertainty in the 

minds of individuals regarding the course of future public policy diminishes their well-being and 

may impose economic costs. Concern about the effect of economic policy uncertainty on 

outcomes has grown in recent years, perhaps in response to the perception that policy uncertainty 

has grown. Consistent with that perception, a number of uncertainty indices show that, over the 

last 50 years, policy uncertainty in the United States has increased.7 Broadly, economic policy 

uncertainty is thought to influence the behavior of individuals and businesses and may affect 

investment rates, employment growth, and stock price volatility in certain sectors. 

Some empirical research shows that uncertainty in tax policy may have similarly negative 

effects, inefficiently reducing economic activity, depressing profits for businesses, and reducing 

individual well-being.8

 While those effects seem intuitive, and are consistent with a basic 

understanding of markets and prices, a closer examination of the underlying economic principles 

shows that policy uncertainty may also, in certain cases, improve the efficiency of the tax system 

by altering prices in specific markets in specific ways.

9

In a market economy with limited resources, prices play a crucial role in the efficient 

distribution of those limited resources. Prices act as signals for shortages and surpluses of 

resources, which help businesses and individuals make appropriate decisions about which goods 

to produce and consume and in what quantities. Taxes alter these signals, inducing different 

production and consumption decisions relative to the undistorted market economy. Sometimes 

 7

 Scott R. Baker, Nicholas Bloom, and Steven J. Davis, “Measuring Economic Policy Uncertainty,” 

Quarterly Journal of Economics, vol. 131, 2016, pp. 1593-1636. Baker, Bloom, and Davis create an index of 

economic policy uncertainty by measuring the frequency of articles in 10 major U.S. newspapers that contain the 

following trio of terms: “economic” or “economy;” “uncertain” or “uncertainty;” and one or more of “Congress,” 

“deficit,” “Federal Reserve,” “legislation,” “regulation,” or “White House.” Their index is highly correlated with 

stock market volatility and the frequency with which the Federal Reserve System’s “Beige Books” mention “policy 

uncertainty.” They find a correlation between changes in their index and both firm-level economic performance and 

macroeconomic performance.

8

 International Monetary Fund and Organization for Economic Cooperation and Development, “Tax 

Certainty: IMF/OECD Report for the G20 Finance Ministers,” 2018; Jonathan Skinner, “The Welfare Cost of 

Uncertain Tax Policy,” Journal of Public Economics, vol. 37, 1988, pp. 129-145; James Alm, “Uncertain Tax 

Policies, Individual Behavior, and Welfare,” American Economic Review, vol. 78, 1988, pp. 237-245.

9

 James R. Hines, Jr. and Michael Keen, “Certain Effects of Uncertain Taxes,” NBER Working Paper, 

no. W25388, December 2018; Joseph Stiglitz, “Utilitarianism and Horizontal Equity: The Case for Random 

Taxation,” Journal of Public Economics, vol. 18, 1982, pp. 1-33.
3

these distortions are desired effects of policy and other times they are by-products of achieving 

other policy goals, but in most cases they reduce the efficiency of markets.10 

Policymakers may design temporary policy notwithstanding that it may create policy 

uncertainty, in cases where they want to experiment with new ideas (e.g., through pilot 

programs), make the policies more appealing to voters, form winning political coalitions, or 

extend benefits to help protect new technologies in infant industries until they become 

sufficiently established to survive without subsidies.

Another important question is what constitutes uncertainty in this setting.11 Both timing 

and expectations affect the extent to which any particular policy is truly uncertain. Changes to 

tax policy may occur before or after irreversible decisions are made, and they may be expected 

or unexpected. Over the past several decades, the Congress has enacted a number of Code 

provisions with a sunset date after which the provision would no longer apply. For example, 

since 2014, the staff of the Joint Committee on Taxation has reported that, each year, an average 

of 52 provisions would expire within the current year or by the subsequent year.12 The 

possibility that any one provision may expire may create uncertainty among many taxpayers. 

However, some temporary tax policies are routinely extended, and are therefore often expected 

to be extended. A statutorily temporary policy that is expected to be extended may have 

economic effects that are similar to a permanent policy, rather than an uncertain one.13

 10 Because businesses and individuals (and associated economic activities) have varying levels of 

responsiveness to prices, tax policy uncertainty may have efficiency-enhancing effects by differentiating those who

are more responsive to distortionary taxation from those who are less so and imposing a relatively higher rate of tax 

on those who are less responsive. This type of policy design lowers the overall behavioral response of businesses 

and individuals to taxes in the economy, and therefore reduces distortions in economic activity caused by taxation.

11 A current Congress cannot bind a future Congress, so that any provision is subject to change in the 

future. 

12 Joint Committee on Taxation, List of Expiring Federal Tax Provisions 2017-2027 (JCX-2-19), January 

2019; Joint Committee on Taxation, List of Expiring Federal Tax Provisions 2016-2027 (JCX-1-18), January 2018; 

Joint Committee on Taxation, List of Expiring Federal Tax Provisions 2016-2026 (JCX-1-17), April 2017; Joint 

Committee on Taxation, List of Expiring Federal Tax Provisions 2016-2025 (JCX-1-16), January 2016; Joint 

Committee on Taxation, List of Expiring Federal Tax Provisions 2014-2025 (JCX-1-15), January 2015. These 

documents can be found on the Joint Committee on Taxation website at www.jct.gov.

13 Andrew C. Chang, 2018. “Nothing is Certain Except Death and Taxes: The Lack of Policy Uncertainty 

from Expiring ‘Temporary’ Taxes,” Finance and Economics Discussion Series 2018-041. Washington: Board of 

Governors of the Federal Reserve System. Available at https://doi.org/10.17016/FEDS.2018.041. 
4

B. Employment and Community Development

Congress has enacted a number of tax provisions related to employment of disadvantaged 

populations and community development in disadvantaged areas of the United States. Some 

policies target individuals, providing incentives for employers to hire and raise wages for certain 

groups of people.14 However, those people-based policies may face obstacles, such as low 

participation by employers, and may not in all cases effectively target low-income families. 

Other policies target specific geographic areas by using eligibility criteria based on locational 

characteristics. While place-based policies do not always target disadvantaged areas, they often 

do. 

Place-based policies that target disadvantaged communities aim to alleviate problems 

associated with such disadvantage. Research shows that high-poverty neighborhoods are 

associated with high unemployment rates, low wages, and low wage growth,15 and living,

working, or going to school in such neighborhoods has an array of negative effects, including 

adverse health outcomes,16 lower educational achievement,17 and lower intergenerational 

mobility.18 

One of the key goals of place-based policies is to seek to provide incentives for job 

creation and wage growth.19 A longstanding explanation for high unemployment in 

disadvantaged neighborhoods is the spatial mismatch hypothesis, according to which housing 

discrimination may segregate disadvantaged workers into residential neighborhoods with fewer 

jobs nearby, and that inadequate transportation to jobs in other areas leads fewer residents to 

choose to work, especially low-wage workers for whom commuting may be especially costly.20 

 14 Kenneth A. Couch, Douglas J. Besharov, and David Neumark, “Spurring Job Creation in Severe 

Recessions: Reconsidering Hiring Credits,” Journal of Policy Analysis and Management, 2013, vol. 32(1), pp. 142-

171. 

15 Katherine G. Abraham and Melissa S. Kearney, “Explaining the Decline in the Employment-toPopulation Ratio: A Review of the Evidence,” NBER Working Paper No. 24333, February 2018.

16 Tama Leventhal and Jeanne Brooks-Gunn, “Moving to Opportunity: an Experimental Study of 

Neighborhood Effects on Mental Health,” American Journal of Public Health, 2003 September; 93(9): 1576-1582; 

Jens Ludwig, et al, “Neighborhoods, Obesity, and Diabetes: A Randomized Social Experiment,” New England 

Journal of Medicine, 2011, 365: 1509-1519.

17 Lawrence F. Katz, et al, “Moving to Opportunity for Fair Housing Demonstration Program: Final 

Impacts Evaluation,” U.S. Department of Housing and Urban Development, Office of Policy Development and 

Research, November 2011. 

18 Raj Chetty and Nathaniel Hendren, “The Effects of Neighborhoods on Intergenerational Mobility I: 

Childhood Exposure Effects,” Quarterly Journal of Economics, 133(3): 1107-1162, 2018.

19 David Neumark, “Rebuilding Communities Job Subsidies,” in Ryan Nunn and Jay Shambaugh (eds.), 

Place-Based Policies for Shared Economic Growth, The Hamilton Project, Brookings Institution, September 2018.

20 For a review of this literature, see John F. Kain, “The Spatial Mismatch Hypothesis: Three Decades 

Later,” Housing Policy Debate, vol. 3, no. 2, 1992.
5

This explanation implies that increasing employment and reducing poverty in disadvantaged 

neighborhoods may require job creation and hiring of local residents within disadvantaged 

neighborhoods or investments in transportation infrastructure to neighboring areas with better 

employment opportunities, or both. 

An important consideration in designing place-based policies is potential spillover 

effects. In this context, spillovers (which may be positive or negative) are the ways in which 

place-based policies may affect neighborhoods other than those directly targeted. For example, 

hiring credits may increase hiring in one locality by simply moving jobs from a second locality 

to the first. In this case, the second locality experiences negative spillover effects as a result of 

the place-based policy (i.e., the hiring credits). On the other hand, a reallocation of jobs from 

one neighborhood to another may result in positive spillovers if the reallocation generates gains 

in output from agglomeration economies,21 which then benefit the entire region through higher 

income levels and public spending. 

Effective place-based policies may also include efforts to boost State and local capacity 

to raise revenue, and, relatedly, create incentives for quality investments in local public goods 

such as health, education, housing, and transportation infrastructure.22 These incentives, if 

temporary, may be made less effective by increasing uncertainty and disrupting long-term 

planning. 

1. Indian employment tax credit (sec. 45A)

• The provision allows a credit to employers against income tax liability for the first 

$20,000 of qualified wages and qualified employee health insurance costs paid or

incurred by the employer with respect to certain employees. The credit is equal to 

20 percent of the excess of eligible employee qualified wages and health insurance 

costs incurred during the current year over the amount of such wages and costs 

incurred by the employer during 1993. The credit is an incremental credit, such that 

an employer’s current-year qualified wages and qualified employee health insurance

costs (up to $20,000 per employee) are eligible for the credit only to the extent that

the sum of such costs exceeds the sum of comparable costs paid during 1993. The 

provision expired for taxable years beginning after December 31, 2017.

• The provision was enacted in the Omnibus Reconciliation Act of 199323 and did not 

apply to taxable years beginning after December 31, 2003.

• The provision has been extended nine times, most recently by the Bipartisan Budget 

Act.

 21 “Agglomeration economies” refers to the phenomenon wherein geographic clustering of economic 

activity results in economies of scale and network effects which lead to increased production at reduced cost. 

22 Ryan Nunn, Jana Parsons, and Jay Shambaugh, “The Geography of Prosperity,” in Ryan Nunn and Jay 

Shambaugh (eds.), Place-Based Policies for Shared Economic Growth, The Hamilton Project, Brookings Institution, 

September 2018.

23 Pub. L. No. 103-66.
6

2. New markets tax credit (sec. 45D)

• The provision allows a credit in the aggregate amount of 39 percent of qualified 

investments in order to attract private capital to promote economic and community 

development in low-income communities. The credit is allowed over seven years, 

five percent in each of the first three years and six percent in each of the next four 

years. 

• In general, the credit is allowed to a taxpayer who makes a “qualified equity 

investment” in a “qualified community development entity” (“CDE”), which further 

invests in a “qualified active low-income community business.” The credit is 

recaptured if the entity fails to continue to be a CDE or the interest is redeemed 

within seven years. 

• The provision was enacted in the Community Renewal Tax Relief Act of 2000.24 

The credit applied to investments made after December 31, 2000, and $15 billion of 

credits were allocated through 2007. 

• In 2005, an additional $1 billion of credits were allocated for qualified areas affected 

by Hurricane Katrina over a period of three years in the Gulf Opportunity Zone Act 

of 2005.25 In 2006 and again in 2008, another $3.5 billion of credits were allocated in 

the Tax Relief and Health Care Act of 2006,26 and in the Tax Extenders and 

Alternative Minimum Tax Relief Act of 2008.

27 In 2009, an additional $3 billion of 

credits were allocated to be split equally between the 2008 (retroactively) and 2009 

allocations in the American Recovery and Reinvestment Act of 2009.28

• The provision was extended four times since 2009, most recently by the Consolidated 

Appropriations Act, 2016.

29 That law provided for an allocation limit of $3.5 billion 

in each of 2015, 2016, 2017, 2018, and 2019, and extended for five years, through 

2024, the carryover period for unused new markets tax credits.

3. Mine rescue team training credit (sec. 45N)

• The mine rescue training credit is a general business credit available with respect to 

each qualified mine rescue team employee employed by the taxpayer equal to the 

lesser of: (1) 20 percent of the amount paid or incurred by the taxpayer during the 

taxable year with respect to the training program costs of each qualified mine rescue 

 24 Pub. L. No. 106-554. 

25 Pub. L. No. 109-135. 

26 Pub. L. No. 109-432. 

27 Pub. L. No. 110-343. 

28 Pub. L. No. 111-5. 

29 Pub. L. No. 114-113. 
7

team employee (including the wages of the employee while attending the program), 

or (2) $10,000. The provision expired for taxable years beginning after December 31, 

2017.

• The provision was enacted in the Tax Relief and Health Care Act of 200630 and was 

effective for tax years beginning after December 31, 2005, and before January 1, 

2009. 

• The provision has been extended six times, most recently by the Bipartisan Budget 

Act.

4. Work opportunity tax credit (sec. 51)

• The work opportunity tax credit (“WOTC”) provides an elective general business 

credit to employers hiring individuals who are members of one or more of ten 

targeted groups. Generally, the maximum credit per employee is $2,400 (40 percent 

of the first $6,000 of qualified first-year wages), but special rules apply for certain 

targeted groups. To claim the credit, an employer must have the employee certified 

as eligible by the appropriate State workforce agency. Amounts paid or incurred to 

individuals who begin work for an employer after December 31, 2019 are not 

qualified first-year wages.

• The provision was enacted in the Small Business Job Protection Act of 199631 for 

wages paid or incurred to a qualified individual who began work for an employer 

before October 1, 1997. The credit was enacted to replace the targeted jobs tax 

credit.

• The provision was been modified multiple times since enactment to add, subtract, or 

refine the targeted groups, to change the maximum credit levels, and to make other 

modifications. In particular, WOTC has been used to target specific populations 

following certain national events, including New York Liberty Zone business 

employees following the September 11, 2001, terrorist attacks32 and Hurricane 

Katrina employees following the 2005 hurricane.33 Beginning in 2007, the welfareto-work tax credit was repealed and the credit’s eligible population was incorporated 

into the WOTC population.34

 30 Pub. L. No. 109-432.

31 Pub. L. No. 104-188.

32 Job Creation and Worker Assistance Act of 2002, Pub. L. No. 107-147. The special rules regarding 

New York Liberty Zone business employees were described in former section 1400L.

33 Katrina Emergency Tax Relief Act of 2005, Pub. L. No. 109-73.

34 Tax Relief and Health Care Act of 2006, Pub. L. No. 109-432.
8

• The provision has been extended 12 times,35 most recently by the Consolidated 

Appropriations Act, 2016.

36

5. Empowerment zone tax incentives (secs. 1391(d)(1)(A)(i) and (h)(2), 1394, 1396, 1397A, 

and 1397B)

• The empowerment zone tax incentives are intended to encourage economic growth 

and investment in distressed communities by providing Federal tax incentives to 

businesses located within the designated geographic areas. There are 40 areas 

designated as empowerment zones. The tax incentives available within the 

designated empowerment zones37 include tax-exempt bond financing,38 a Federal 

income tax credit for employers who hire qualifying employees,39 accelerated 

depreciation deductions on qualifying equipment under section 179,40 and deferral of 

capital gains tax on sale of qualified assets sold and replaced.41 The tax incentives 

generally expire after December 31, 2017. 

• The empowerment zone tax incentives were enacted in the Omnibus Budget 

Reconciliation Act of 1993,

42 which authorized the designation of nine empowerment 

zones (“Round I empowerment zones”) to be designated by the Secretaries of the 

Department of Housing and Urban Development and the Department of Agriculture. 

These designations were to be made after 1993 and before 1996 and terminated upon 

the earliest of (i) the close of the tenth calendar year beginning on or after such date 

of designation, (ii) the termination date designated by the State and local governments 

as provided for in their nomination, or (iii) the date the appropriate Secretary revoked 

the designation. 

• The Taxpayer Relief Act of 199743 authorized the designation of two additional 

Round I urban empowerment zones, and 20 additional empowerment zones 

(“Round II empowerment zones”). These designations were to be made after the date 

 35 One of the 12 extensions applied solely to qualified veterans, not to all targeted groups. Pub. L. 

No. 112-56.

36 Pub. L. No. 114-113.

37 Sec. 1391(d)(1)(A)(i) and (h)(2). 

38 Sec. 1394. 

39 Sec. 1396. 

40 Sec. 1397A. 

41 Sec. 1397B. 

42 Pub. L. No. 103-66.

43 Pub. L. No. 105-34.
9

of the enactment and before January 1, 1999. The Community Renewal Tax Relief 

Act of 2000 (“Renewal Act”)

44 authorized a total of 10 new empowerment zones 

(“Round III empowerment zones”). These designations were to be made after the 

date of the enactment and before January 1, 2002. The designations were generally to 

remain in effect during the period beginning on January 1, 2002, and ending on 

December 31, 2009. In addition, the Renewal Act conformed the tax incentives that 

are available to businesses in the Round I, Round II, and Round III empowerment 

zones, added some additional tax incentives (deferral of capital gains tax on sale of 

qualified assets sold and replaced under section 1397B and partial exclusion of capital 

gains tax on certain sales of qualified small business stock), raised the expensing 

limitation on qualifying equipment under section 1397, and generally extended all of 

the empowerment zone incentives through December 31, 2009.

• The empowerment zone tax benefits were extended five times, most recently by the 

Bipartisan Budget Act. The empowerment zone tax incentives may expire earlier 

than December 31, 2017, if a State or local government provided for an expiration 

date in the nomination of an empowerment zone or the appropriate Secretary revokes 

an empowerment zone’s designation. The State or local government may, however, 

amend the nomination to provide for a new termination date.

6. American Samoa economic development credit (sec. 119 of Pub. L. No. 109-432, as 

amended)

• The American Samoa economic development credit is a credit against U.S. corporate 

income tax for domestic corporations with operations in American Samoa. The credit 

is available to domestic corporations that claimed the now-expired section 936 

possessions tax credit with respect to American Samoa for its last taxable year 

beginning before January 1, 2006, and for other domestic corporations with 

operations in American Samoa for taxable years beginning after December 31, 2011. 

The credit expired for taxable years beginning after December 31, 2017.

• The provision was enacted in the Tax Relief and Health Care Act of 200645 and 

originally applied to the first two taxable years of a corporation that began after 

December 31, 2005, and before January 1, 2008.46 The credit was available only to 

domestic corporations that claimed the now-expired section 936 possessions tax 

credit. For years beginning before December 31, 2011, the amount of the credit is 

equal to the sum of certain percentages of a domestic corporation’s employee wages, 

employee fringe benefit expenses, and tangible property depreciation allowances for 

 44 Pub. L. No. 106-554.

45 Pub. L. No. 109-432.

46 The enactment of the American Samoa economic development credit coincided with the pending 

expiration of the section 936 possessions tax credit. The section 936 possessions tax credit generally expired for 

taxable years beginning after December 31, 2005. 
10

the taxable year in respect of the active conduct of a trade or business in American 

Samoa. 

• The American Taxpayer Relief Act of 201247 modified the provision for taxable years 

beginning after December 31, 2011 to permit corporations that were not existing 

claimants of the former section 936 credit to claim the credit and to require that all 

claimants have qualified production activities income in American Samoa within the 

meaning of former section 199(c). 

• The provision has been extended six times, most recently by the Bipartisan Budget 

Act.

 47 Pub. L. No. 112-240.
11

C. Health Tax

1. Credit for health insurance costs of eligible individuals (sec. 35)

• The provision (commonly referred to as the health coverage tax credit or “HCTC”) 

allows certain individual taxpayers a refundable credit equal to 72.5 percent of the 

premiums paid by the individual for coverage of the individual and qualifying family 

members under qualified health insurance. Advance monthly payments paid directly 

to the health plan administrator are available.

48 The HCTC is only allowed for

amounts paid for eligible coverage months. An eligible coverage month is any month 

if (1) the month begins before January 1, 2020, and (2) as of the first day of the 

month, (i) the individual is an eligible individual, (ii) is covered by qualified health 

insurance, the premium for which is paid by the individual, (iii) does not have other 

specified coverage, and (iv) is not imprisoned under Federal, State, or local authority. 

In the case of a joint return, the eligibility requirements are met if at least one spouse 

satisfies the requirements.

• An eligible individual is an individual who is (1) an eligible Trade Adjustment 

Assistance (“TAA”) recipient, (2) an eligible alternative TAA recipient, or (3) an 

eligible Pension Benefit Guaranty Corporation pension recipient, all as defined in the 

provision.

• The provision was enacted a part of the Trade Act of 200249 effective for taxable

years beginning after December 31, 2001 and for eligible coverage months beginning 

after November 4, 2002.50 As initially enacted, the HCTC was equal to 65 percent of 

the premiums paid.

• The provision has been modified several times, most significantly by the American 

Recovery and Reinvestment Act,51 which temporarily increased the HCTC to 

80 percent of the premiums paid and made certain other changes to the eligibility 

criteria.52 The Trade Adjustment Assistance Extension Act of 201153 lowered the 

HCTC to the current amount of 72.5 percent of the premiums paid. That Act also 

made the provision temporary by terminating the HCTC for eligible coverage months 

beginning after December 31, 2013. 

 48 Sec. 7527.

49 Pub. L. No. 107-210.

50 This date is 90 days after the date of enactment of the Trade Act of 2002 on August 6, 2002.

51 Pub. L. No. 111-5.

52 This temporary increased rate was extended once by the Omnibus Trade Act of 2010, Pub. L. No. 111-

344.

53 Pub. L. No. 112-40. 
12

• The provision has been extended once by the Trade Adjustment Assistance 

Reauthorization Act of 2015,

54 which extended the HCTC to eligible coverage 

months beginning before January 1, 2020.

2. Employer credit for paid family and medical leave (sec. 45S)

• For taxable years beginning before January 1, 2020, the employer credit for paid 

family and medical leave permits eligible employers to claim an elective general 

business credit based on eligible wages paid to qualifying employees with respect to 

family and medical leave, as defined for this purpose. The credit is equal to 

12.5 percent of eligible wages if the rate of payment is 50 percent of such wages, and 

is increased by 0.25 percentage points (but not above 25 percent) for each percentage 

point that the rate of payment exceeds 50 percent. The maximum amount of family 

and medical leave that may be taken into account with respect to any qualifying 

employee is 12 weeks per taxable year. Among other requirements, to claim the 

credit, employers must have a written policy in place that provides at least two weeks 

of paid family and medical leave to all qualifying employees at a rate of payment that 

is at least 50 percent of wages normally paid to the employee. A qualifying employee 

generally means an employee who has been employed by the employer for at least 

one year and did not earn compensation above a certain threshold in the preceding 

year (for the 2018 taxable year, this threshold was $72,000).

• The provision was enacted as part of the 2017 Tax Act,55 effective for wages paid in 

taxable years beginning after December 31, 2017.

3. Medical expense deduction: 7.5 percent adjusted gross income (“AGI”) floor (sec. 213)

• For taxable years ending before January 1, 2019, individuals may claim an itemized 

deduction for unreimbursed medical expenses paid during the taxable year to the 

extent that the expenses exceed 7.5 percent of AGI for purposes of regular tax and the 

alternative minimum tax (“AMT”). For taxable years ending after December 31, 

2018, the deduction is available to the extent such expenses exceed 10 percent of 

AGI. 

• An itemized deduction for unreimbursed medical expenses above a specified floor 

has been allowed since 1942. The Patient Protection and Affordable Care Act56

created a temporary specified floor of 7.5 percent of AGI for regular tax purposes if 

the taxpayer or taxpayer’s spouse attained the age of 65 before the close of the 

taxable year for taxable years beginning after December 31, 2012, and beginning 

before January 1, 2017. For all other taxpayers and for AMT purposes, the floor was 

10 percent of AGI. 

 54 Pub. L. No. 114-27.

55 Pub. L. No. 115-97.

56 Pub. L. No. 111-148.
13

• The 2017 Tax Act reduced the floor to 7.5 percent of AGI for all taxpayers for 

taxable years beginning after December 31, 2016, and ending before January 1, 2019, 

for regular tax and AMT purposes.

• The 7.5-percent floor applicable if a taxpayer or taxpayer’s spouse has attained the 

age of 65 has been extended one time as part of the overall reduction in the floor 

enacted in the 2017 Tax Act.

4. Black Lung Disability Trust Fund: increase in amount of excise tax on coal (sec. 4121)

• For sales before January 1, 2019, there was a temporary increase in the tax rates on 

coal: $1.10 per ton of underground-mined coal or $0.55 per ton of surface-mined 

coal, not to exceed 4.4 percent of the sales price. For sales after December 31, 2018, 

those tax rates revert to the rates established in 1977: $0.50 per ton of undergroundmined coal or $0.25 per ton of surface-mined coal, not to exceed two percent of the 

sales price. 

• The Black Lung Benefits Revenue Act of 197757 first imposed the excise tax on coal. 

The tax was effective for sales after March 31, 1978. 

• The Black Lung Benefits Revenue Act of 198158 temporarily doubled the excise tax 

rates to $1.00 per ton for coal from underground mines and $0.50 per ton for coal 

from surface mines, not to exceed four percent of the sales price. The doubled rates 

were effective January 1, 1982, and were scheduled to revert to the previous rates on 

January 1, 1996. The Consolidated Omnibus Budget Reconciliation Act of 198559

temporarily increased the rates to $1.10 for underground-mined coal and $0.55 for 

surface-mined coal, not to exceed 4.4 percent of the sales price. The Omnibus 

Budget Reconciliation Act of 198760 extended those rates through 2013. The 

increased excise tax rates on coal were again extended through 2018 as part of the 

Emergency Economic Stabilization Act of 2008.61

5. Medical device excise tax (sec. 4191)

• For sales after December 31, 2012, excluding sales during the period beginning on 

January 1, 2016, and ending on December 31, 2019, a tax equal to 2.3 percent of the 

sale price is imposed on the sale of any taxable medical device by the manufacturer, 

producer, or importer of such device. A taxable medical device generally is any 

 57 Pub. L. No. 95-227. 

58 Pub. L. No. 97-119. 

59 Pub. L. No. 99-272. 

60 Pub. L. No. 100-203. 

61 Pub. L. No. 110-343. 
14

device, as defined in section 201(h) of the Federal Food, Drug, and Cosmetic Act,62

intended for humans. Regulations further define a taxable medical device as one that 

is listed by the Food and Drug Administration (“FDA”) under section 510(j) of the 

Federal Food, Drug, and Cosmetic Act and 21 C.F.R. Part 807, pursuant to FDA 

requirements.63 The excise tax does not apply to eyeglasses, contact lenses, hearing 

aids, or any other medical device determined by the Secretary to be of a type that is 

generally purchased by the general public at retail for individual use. 

• The provision was enacted in the Patient Protection and Affordable Care Act,64 and 

applies to any sale of a taxable medical device during the period beginning after 

December 31, 2012, and ending on December 31, 2015, as well as any sale of a 

taxable medical device after December 31, 2019.

• A moratorium on the provision was enacted in the Consolidated Appropriations Act, 

2016,

65 which provided that the excise tax would not apply to sales during the period 

beginning January 1, 2016, and ending on December 31, 2017.

• The moratorium on the provision has been extended once by the Extension of 

Continuing Appropriations Act, 2018,66 which extended the moratorium to include 

sales during the period beginning January 1, 2018, and ending on December 31, 2019.

6. Annual fee on health insurance providers (sec. 9010 of the Patient Protection and 

Affordable Care Act)

• Effective for calendar years beginning after 2013, and ending before January 1, 2017, 

beginning after December 31, 2017, and ending before January 1, 2019, and 

beginning after December 31, 2019, an annual fee applies to any covered entity 

engaged in the business of providing health insurance with respect to United States 

health risks (“U.S. health risks”). The aggregate annual fee for all covered entities is 

the applicable amount. The applicable amount is $8 billion for calendar year 2014, 

$11.3 billion for calendar years 2015 and 2016, $13.9 billion for calendar year 2017, 

and $14.3 billion for calendar year 2018. For calendar years after 2018, the 

applicable amount is indexed to the rate of premium growth. However, a moratorium 

on the annual fee on health insurance providers applies for calendar years 2017 and 

2019. The aggregate annual fee is apportioned among the providers based on a ratio 

designed to reflect relative market share of U.S. health insurance business. For each 

covered entity, the fee for a calendar year is an amount that bears the same ratio to the 

applicable amount as (1) the covered entity’s net premiums written during the 

 62 21 U.S.C. sec. 321. 

63 Treas. Reg. sec. 48.4191-2(a). 

64 Pub. L. No. 111-148.

65 Pub. L. No. 114-113. 

66 Pub. L. No. 115-120. 
15

preceding calendar year with respect to health insurance for any U.S. health risk, 

bears to (2) the aggregate net written premiums of all covered entities during such 

preceding calendar year with respect to such health insurance.

• The provision was enacted in section 9010 of the Patient Protection and Affordable 

Care Act,67 effective for calendar years beginning after December 31, 2013.

• A moratorium on the application of the provision for calendar year 2017 was enacted 

in the Consolidated Appropriations Act, 2016.68

• A moratorium on the application of the provision for calendar year 2019 was enacted 

in the Extension of Continuing Appropriations Act, 2018.69

7. Specified health insurance policy fee (sec. 4375)

• For policy years ending before September 30, 2019, the provision imposes a fee on 

each specified health insurance policy equal to the product of $2 multiplied by the 

average number of lives covered under the policy. For fiscal years beginning after 

September 30, 2014, the dollar amount is adjusted for increases in health care 

spending. The fee is paid by the issuer of the policy, and helps fund the PatientCentered Outcomes Research Trust Fund established under section 9511. 

• The provision was enacted in the Patient Protection and Affordable Care Act,70 and 

applies to each specified health insurance policy for each policy year ending after 

September 30, 2012, for policy years ending before September 30, 2019. 

• The provision has not previously been extended.

8. Self-insured health plan fee (sec. 4376)

• For plan years ending before September 30, 2019, the provision imposes a fee on any 

applicable self-insured health plan equal to the product of $2 multiplied by the 

average number of lives covered under the plan. For fiscal years beginning after 

September 30, 2014, the dollar amount is adjusted for increases in health care 

spending. The fee is paid by the plan sponsor, and helps fund the Patient-Centered 

Outcomes Research Trust Fund established under section 9511. 

 67 Pub. L. No. 111-148.

68 Pub. L. No. 114-113.

69 Pub. L. No. 115-120.

70 Pub. L. No. 111-148.
16

• The provision was enacted in the Patient Protection and Affordable Care Act,71 and 

applies to any applicable self-insured health plan for each plan year ending after 

September 30, 2012, for plan years ending before September 30, 2019. 

• The provision has not previously been extended.

 71 Pub. L. No. 111-148.
17

D. Energy

Congress has enacted many tax provisions related to energy production (including oil and 

gas and renewables) and conservation. Generally, policymakers offer two broad rationales for 

intervention in the energy market and for using tax policy to help effectuate these policy goals. 

One policy rationale is to promote domestic energy independence. Some have argued 

that decreasing the dependence of the United States on foreign-source energy is desirable for 

geopolitical and national defense reasons. The oil embargo of the 1970s imposed economic 

costs on the U.S. economy. Mitigating the potential of similar energy supply disruptions in the 

future has motivated various policies both to increase domestic energy production from multiple 

sources, including fossil fuels and alternative energy, and to promote conservation in energy 

consumption. Some have argued that using tax policy to achieve these objectives has the 

advantage of using the market economy, with taxpayers responding to the economic incentives 

created by the tax policy, instead of programs requiring applications to and grants from the 

Federal government. 

A second rationale for government intervention in certain markets (including many 

aspects of energy markets) is the presence of “externalities” in the consumption or production of 

certain goods. Externalities exist when, in the consumption or production of a good, there is a 

difference between the cost (or benefit) to an individual and the cost (or benefit) to society as a 

whole. These externalities lead to “market failures” wherein the mismatch between individual 

and social costs (or benefits) result in the purely market-based outcome providing either too little 

or too much of certain economic activity, relative to what is socially optimal. Thus, tax 

preferences that encourage more or less consumption or production, as appropriate, can help to 

achieve increases in economic efficiency by moving consumption or production toward the 

socially optimal level.

The externality that is generally the subject of concern for energy markets is pollution. 

Pollution is considered a negative externality because the producers of pollution generally do not 

bear the full costs of pollution to society, thus resulting in the production of a larger amount of 

pollution than is socially optimal. Many economists agree that the most efficient means of 

addressing pollution is a direct tax on pollution-causing activities,72 rather than through the 

indirect approach of targeted tax credits for certain technologies.73 A direct tax on pollutioncausing activity is technology neutral, meaning that it does not favor any particular technology 

that individuals may choose to use, or any particular behavioral modification that individuals 

may choose to make, in their pollution-reducing responses to the tax. 

Rather than taking this direct approach, many energy-related Federal tax incentives 

provide targeted tax credits for investment in, or expenditures on, certain assets that reduce, 

 72 For example, with respect to carbon emissions, see “Economists’ Statement on Carbon Dividends,” Wall 

Street Journal, January 17, 2019. Signatories include Nobel Laureate economists and former chairs of the Council 

of Economic Advisers from both Democratic and Republican administrations. Archived at 

https://www.clcouncil.org/economists-statement/.

73 A practical issue with both the broad and targeted tax approaches is estimating the cost of pollution.
18

directly or indirectly, the consumption of conventional fuels and the attendant negative 

externalities. Likewise, if promoting energy independence is a policy rationale, a collection of 

disparate tax benefits in favor of specific approaches to conservation and specific sources of 

increased supply achieves the goal at a greater cost to the government because of the economic 

inefficiency created by the distortion of the markets for energy-conserving goods and services 

and energy production. 

Ideally, the design of these tax benefits would be coordinated to try to mimic the more 

economically efficient outcome that a broad-based tax would provide. Some criticize the current 

system of incentives as a set of disparate provisions that lack not only this coordination but also 

well-defined objectives, and further argue that the temporary nature of the incentives and 

uncertainty regarding renewal or extension reduces their efficacy by disrupting long-term 

planning.74

1. Credit for certain nonbusiness energy property (sec. 25C)

• For property placed in service before January 1, 2018, the provision allows a credit of 

10 percent of the expenditures on energy-efficient improvements to the building 

envelope (windows, doors, skylights, and roofs) of principal residences, and credits of 

fixed dollar amounts ranging from $50 to $300 for energy-efficient property 

including furnaces, boilers, biomass stoves, heat pumps, water heaters, central air 

conditioners, and circulating fans. It is subject to a lifetime cap of $500.

• The provision was first enacted in the Energy Policy Act of 200575 for property 

placed in service after December 31, 2005, and before January 1, 2008.

• The provision was substantially modified in the American Recovery and 

Reinvestment Tax Act of 2009,

76 with the principal change being an increase in the 

credit amounts to 30 percent of expenditures on all qualifying property, up to a 

$1,500 aggregate credit over two years for 2009 and 2010. This modification was not 

included in the most recent extension of the provision.

• The provision has been extended seven times, most recently by the Bipartisan Budget 

Act.

2. Alternative motor vehicle credit for qualified fuel cell motor vehicles (sec. 30B(b))

• For purchases made before January 1, 2018, a credit is available for vehicles 

propelled by chemically combining oxygen with hydrogen and creating electricity. 

The base credit is $4,000 for vehicles weighing 8,500 pounds or less. For heavier 

vehicles, a credit of up to $40,000 may be allowed. An additional $1,000 to $4,000 

 74 See Joint Committee on Taxation, Present Law and Analysis of Energy-Related Tax Expenditures (JCX46-16), June 9, 2016 for a more detailed discussion of issues with targeted energy subsidies.

75 Pub. L. No. 109-58.

76 Pub. L. No. 111-5.
19

credit is available for purchases of cars and light trucks to the extent their fuel 

economy exceeds the 2002 base fuel economy set forth in the Code.

• The provision was enacted as part of the Energy Policy Act of 200577 through 

December 31, 2014.

• The original provision included incentives for hybrid electric vehicles, lean burn 

diesel vehicles, and other incentives. These elements of the provision have all 

expired, generally in 2009, 2010, and 2011.

• The provision has been extended twice, most recently by the Bipartisan Budget Act.

3. Credit for alternative fuel vehicle refueling property (sec. 30C)

• For property placed in service before January 1, 2018, a 30-percent credit is available 

for property that dispenses alternative fuels, including ethanol, biodiesel, natural gas, 

hydrogen, and electricity. The credit may not exceed $30,000 per location for 

business property and $1,000 for property installed at a principal residence.

• The provision was enacted as part of the Energy Policy Act of 200578 effective for 

property placed in service after December 31, 2005, in tax years ending after such 

date, and before January 1, 2010 (January 1, 2015 for hydrogen refueling property).

• The provision has been extended six times, most recently by the Bipartisan Budget 

Act.

4. Credit for two-wheeled plug-in electric vehicles (sec. 30D)

• A 10-percent credit (up to $2,500) is available for purchases of vehicles otherwise 

qualifying as plug-in electric-drive vehicles but which have only two wheels and 

which are acquired before January 1, 2018. Such two-wheeled vehicles must have a 

battery capacity of at least 2.5 kilowatt-hours.

• The provision was enacted (and originally codified under section 30) as part of the 

American Recovery and Reinvestment Tax Act of 200979 through December 31, 

2011.

• The credit was originally available for two- and three-wheeled vehicles but lapsed for 

calendar year 2014. It was prospectively extended (for two-wheeled vehicles only) 

from January 1, 2015, through December 31, 2016, by the Consolidated 

Appropriations Act, 2016.

80

• The provision was most recently extended by the Bipartisan Budget Act.

 77 Pub. L. No. 109-58.

78 Pub. L. No. 109-58.

79 Pub. L. No. 111-5.

80 Pub. L. No. 114-113.
20

5. Second generation biofuel credit (formerly known as the “cellulosic biofuel producer 

credit”) (sec. 40(b)(6))

• The provision provides for a $1.01-per-gallon income tax credit (nonrefundable) for 

qualified second generation biofuel sold at retail into the fuel tank of a buyer’s 

vehicle, or second generation biofuel mixed with gasoline or a special fuel and sold or 

used as a fuel (not limited to transportation fuel). The provision expires for fuel 

produced after December 31, 2017.

• The provision was enacted as part of the Heartland, Habitat, Harvest, and Horticulture 

Act of 200881 for qualified cellulosic biofuel production after December 31, 2008,

and before January 1, 2013.

• The Health Care and Education Reconciliation Act of 201082 amended the cellulosic 

biofuel production credit to exclude fuels exceeding certain water and/or sediment 

content (such as black liquor). In addition, the Creating Small Business Jobs Act of 

201083 amended the provision to exclude certain fuels exceeding certain acidity levels 

(such as crude tall oil). The American Tax Relief Act of 201284 renamed the credit 

the “second generation biofuel producer credit” and added algae, cyanobacteria, and 

lemna as qualifying feedstocks.

• The provision has been extended four times, most recently by the Bipartisan Budget 

Act.

6. Incentives for biodiesel and renewable diesel (secs. 40A, 6426(c), and 6427(e))

The incentives for biodiesel and renewable diesel consist of four components:

1. Income tax credits for biodiesel fuel, biodiesel used to produce a qualified mixture, 

and small agri-biodiesel producers (sec. 40A). 

2. Income tax credits for renewable diesel fuel and renewable diesel used to produce a 

qualified mixture (sec. 40A). 

3. Excise tax credits and outlay payments for biodiesel fuel mixtures (secs. 6426(c)(6) 

and 6427(e)(6)(B)). 

4. Excise tax credits and outlay payments for renewable diesel fuel mixtures

(secs. 6426(c)(6) and 6427(e)(6)(B)). 

 81 Pub. L. No. 110-246.

82 Pub. L. No. 111-152.

83 Pub. L. No. 111-240.

84 Pub. L. No. 112-240.
21

Biodiesel 

• The biodiesel fuels credit is the sum of three credits: (1) the biodiesel mixture credit 

($1.00 per gallon of biodiesel used by the taxpayer in the production of a qualified 

biodiesel mixture), (2) the biodiesel credit ($1.00 per gallon of biodiesel that is not in 

a mixture with diesel fuel), and (3) the small agri-biodiesel producer credit (10 cents 

per gallon for up to 15 million gallons of agri-biodiesel produced by small producers). 

The credits may be taken as income tax credits and the biodiesel mixture credit may 

be taken as an excise tax payment or credit. 

• The biodiesel provision was enacted in the American Jobs Creation Act85 and 

originally expired on December 31, 2006. 

• The provision was subsequently modified and extended by the Energy Tax Incentives 

Act of 200586 which added small agri-biodiesel producer income tax credit and 

extended the incentives through December 31, 2008. The provision was amended by 

the Energy Improvement and Extension Act of 2008,

87 which equalized credit for 

biodiesel and agri-biodiesel at $1.00, clarified that fuel produced outside the United 

States for use outside the United States was ineligible for the credit, and extended the 

incentives through December 31, 2009. 

• The provision has been extended seven times, most recently by the Bipartisan Budget 

Act.

Renewable diesel 

• Renewable diesel is treated the same as biodiesel for purposes of the Code, except 

there is no small producer credit.

• The renewable diesel provision was added by the Energy Tax Incentives Act of 

200588 and was limited to fuel made using a thermal depolymerization process and 

was originally to expire December 31, 2008.

• The Energy Improvement and Extension Act of 200889 removed the requirement that 

renewable diesel be made using a thermal depolymerization process, gave the 

Secretary authority to approve fuel standards equivalent to the requirements of 

American Society of Testing Materials (“ASTM”) D975 or D396 for purposes of 

renewable diesel, provided that military jet fuel and ASTM aviation turbine fuel 

qualified as renewable diesel, provided that renewable diesel could not be 

 85 Pub. L. No. 108-357.

86 Pub. L. No. 109-58.

87 Pub. L. No. 110-343.

88 Pub. L. No. 109-58.

89 Pub. L. No. 110-343.
22

coprocessed with a feedstock that is not biomass as defined in section 45K(c)(3) 

(e.g., crude oil), and extended the incentive through December 31, 2009.

• The provision has been extended six times, most recently by the Bipartisan Budget 

Act.

7. Credit for electricity produced from certain renewable resources (secs. 45 and 48(a)(5))

• A production tax credit is available for electricity produced from certain renewable 

resources during the 10-year period beginning after the related renewable power 

facility has been placed in service. The credit rate is adjusted annually for inflation 

and for 2017 is 2.4 cents per kilowatt hour for power produced at wind, closed-loop 

biomass and geothermal facilities and 1.2 cents per kilowatt hour for power produced 

at open-loop biomass, small irrigation power, municipal solid waste, 

marine/hydrokinetic, and certain hydropower facilities. The credit for nonwind

facilities expires for facilities the construction of which begins after December 31, 

2017. The credit for wind facilities expires for facilities the construction of which 

begins after December 31, 2019. The credit for wind facilities is subject to a 

phasedown whereby the total credit is reduced by 20 percent for facilities the 

construction of which begins in calendar year 2017, by 40 percent for facilities the 

construction of which begins in calendar year 2018, and by 60 percent for facilities 

the construction of which begins in calendar year 2019. 

• Taxpayers may elect to claim a 30-percent investment tax credit in lieu of a 

production tax credit with respect to property placed in service at a qualified facility. 

Property used in wind facilities for which this election has been made are subject to 

the phasedown described above.

• The provision was enacted as part of the Energy Policy Act of 199290 at which time 

only electricity produced at qualified wind and closed-loop biomass facilities were 

credit-eligible. The credit originally expired for facilities placed in service after 

June 30, 1999. 

• The credit has been extended and modified many times. Major modifications (listed 

below) occurred in 1999, 2004, 2005, and 2008. The Ticket to Work and Work 

Incentives Improvement Act of 199991 extended the credit and added poultry waste 

facilities placed in service after 1999 as qualified renewable power facilities. The 

American Jobs Creation Act of 200492 extended the credit and added open-loop 

biomass (which subsumed poultry waste), solar power, small irrigation power, and 

municipal solid waste as qualified renewable power resources. Facilities producing

power using these resources were only eligible for five years of credit. In addition, 

the credit rate for power from such facilities was half the rate for electricity produced 

 90 Pub. L. No. 102-386.

91 Pub. L. No. 107-170.

92 Pub. L. No. 108-357.
23

at qualified wind and closed-loop biomass facilities. The Energy Policy Act of 

200593 extended the credit (except for solar power facilities), increased the credit 

period to 10 years for all qualified facilities, and added qualified hydropower 

facilities to the list of credit-eligible facilities. The Energy Improvement and 

Extension Act of 200894 extended the credit and added marine and hydrokinetic 

renewable energy as a qualified resource. The American Recovery and Reinvestment 

Tax Act of 200995 added the election to claim a 30-percent investment credit in lieu 

of a production credit, for facilities placed in service after December 31, 2008. The 

Consolidated Appropriations Act, 2016,96 extended the credit for two years, through 

2016, for nonwind facilities and for five years, through 2019 but subject to the 

phasedown, for wind facilities. 

• The nonwind portions of the provision were most recently extended by the Bipartisan 

Budget Act.

8. Credit for production of Indian coal (sec. 45(e)(10)) 

• A $2-per-ton credit (adjusted for inflation; $2.423 per ton for 2017) is available 

through December 31, 2017, for coal produced from reserves that on June 14, 2005, 

were owned by (or held in trust by the United States on behalf of) an Indian tribe.

• The provision was enacted as part of the Energy Policy Act of 200597 through 

December 31, 2012.

• The provision has been extended four times, most recently by the Bipartisan Budget 

Act.

9. Credit for construction of new energy efficient homes (sec. 45L)

• A credit of $1,000 or $2,000 per home (depending on efficiency standard met) is 

provided to the contractor or manufacturer for each certified energy efficient new 

home acquired from the contractor or manufacturer before January 1, 2018.

• The provision was first enacted in the Energy Policy Act of 200598 for new homes 

constructed in 2006 and 2007.

• The provision has been extended seven times, most recently by the Bipartisan Budget 

Act.

 93 Pub. L. No. 109-58.

94 Pub. L. No. 110-343.

95 Pub. L. No. 111-5.

96 Pub. L. No. 114-113.

97 Pub. L. No. 109-58.

98 Pub. L. No. 109-58.
24

10. Special depreciation allowance for second generation biofuel plant property (sec. 168(l))

• The provision allows an additional first-year depreciation deduction equal to 

50 percent of the adjusted basis of qualified second generation biofuel plant property 

that is used in the United States solely to produce second generation biofuel and 

if (1) the original use of the property commences with the taxpayer on or after 

December 20, 2006, (2) the property is to be acquired by purchase by the taxpayer 

after the date of enactment, but only if no written binding contract for the acquisition 

was in effect on or before such date, (3) the property is placed in service before 

January 1, 2018, and (4) no portion of the property is financed with the proceeds of a 

tax-exempt bond obligation. For this purpose, second generation biofuel means any 

liquid fuel which is derived from qualified feedstocks and meets the registration 

requirements for fuels and fuel additives established by the Environmental Protection 

Agency under section 211 of the Clean Air Act. “Qualified feedstocks” means any 

lignocellulosic or hemicellulosic matter that is available on a renewable or recurring 

basis, and any cultivated algae, cyanobacteria, or lemna.

• The provision was enacted in the Tax Relief and Health Care Act of 200699 for 

cellulosic biomass ethanol plant property placed in service after December 20, 2006,

and before January 1, 2013. 

• The provision has been extended four times, most recently by the Bipartisan Budget 

Act.

• The 2017 Tax Act provides 100-percent bonus depreciation (subject to a phasedown) 

for qualified property acquired and placed in service after September 27, 2017.

100

Qualified property includes MACRS property with an applicable recovery period of 

20 years or less, and therefore generally includes qualified second generation biofuel 

plant property. 

11. Special rule for sales or dispositions to implement Federal Energy Regulatory 

Commission (“FERC”) or State electric restructuring policy (sec. 451(k))

• The provision allows a taxpayer that is a qualified electric utility to elect to recognize 

gain from a qualifying electric transmission transaction ratably over an eight-year 

period beginning in the year of sale if the amount realized from such sale is used to 

purchase exempt utility property within the applicable period. The provision does not 

apply to transactions occurring after December 31, 2017.

 99 Pub. L. No. 109-432.

100 In general, the 100-percent allowance is phased down by 20 percent per calendar year for qualified 

property placed in service after December 31, 2022. See sec. 168(k).
25

• The provision was enacted (originally as section 451(i)) as part of the American Jobs 

Creation Act of 2004101 and was effective for transactions occurring between 

October 23, 2004 and December 31, 2007.

• The provision has been extended seven times, most recently by the Bipartisan Budget 

Act.

• The 2017 Tax Act redesignated this provision as section 451(k) as a result of other 

amendments made to section 451.

12. Incentives for alternative fuel and alternative fuel mixtures (secs. 6426(d) and (e), and 

6427(e))

• The provision provides for a 50-cents-per gallon excise tax credit or payment for 

certain alternative fuel used as fuel in a motor vehicle, motor boat, or airplane, and a 

50-cents-per gallon credit for alternative fuel mixed with a traditional fuel (gasoline, 

diesel, or kerosene) for use as a fuel (not limited to transportation applications). The 

credits expire for fuel sold or used after December 31, 2017.

• The provision was enacted in the Safe, Accountable, Flexible, Efficient

Transportation Equity Act of 2005102 and expired on September 30, 2009 

(September 30, 2014, in the case of hydrogen fuel). The provision was subsequently 

modified in the Tax Technical Corrections Act of 2007.

103 The original provision 

provided a credit for fuel that was a “liquid hydrocarbon derived from biomass.” The 

credit was intended to cover fish oil, which contains oxygen, and is not exclusively 

composed of hydrogen and carbon. The modification changed “liquid hydrocarbon”

to “liquid fuel.”

• The provision was modified in the Energy Improvement and Extension Act of 

2008104 which extended the non-hydrogen incentives through December 31, 2009, 

clarified that fuel produced outside the United States for use outside the United States 

was ineligible for the credit, added compressed or liquefied biomass gas to the list of 

alternative fuels, allowed credit for aviation use, and added a carbon capture 

requirement for liquid fuel derived from coal through the Fischer-Tropsch process 

(coal to liquids). The Tax Relief, Unemployment Insurance Reauthorization and Job 

Creation Act of 2010105 excluded from credit eligibility any fuel derived from the 

 101 Pub. L. No. 108-357.

102 Pub. L. No. 109-59.

103 Pub. L. No. 110-172.

104 Pub. L. No. 110-343.

105 Pub. L. No. 111-312.
26

production of paper or pulp (including lignin, wood residues, or spent pulping 

liquor).106

• The provision has been extended six times, most recently by the Bipartisan Budget 

Act.

 106 In addition, mixtures of butane and gasoline are not alternative fuel mixtures and do not qualify for the 

alternative fuel mixture credit under section 6426(e). Rev. Rul. 2018-2, 2018-2 I.R.B. 277. 
27

E. Cost Recovery

Economic output may be understood as the product of labor supply and average labor 

productivity. Capital investment affects economic output by influencing average labor 

productivity. A primary way tax policy can promote capital investment is by lowering the user 

cost of capital, which is the opportunity cost that a firm (user) incurs as a consequence of owning 

a capital asset.107 Lower statutory income tax rates and greater tax depreciation deductions both 

tend to lower the user cost of capital.

While taxes may affect economic output directly as discussed above, taxes may also 

affect output levels indirectly by influencing how efficiently resources, such as capital, are 

allocated in the economy. As economic resources are allocated more efficiently (i.e., are 

increasingly directed to their most productive use), average labor productivity increases. Taxes 

generally lead to economy-wide distortions that reduce economic efficiency, but in some cases 

taxes can correct for market failures and thereby increase economic efficiency. The effect of 

taxes on economic efficiency depends on both the nature of the tax and the economic activity 

being taxed.

To the extent extensions of expired cost-recovery provisions reduce differences in 

marginal tax rates across different types of investment, they may promote a more efficient 

allocation of resources by eliminating preferential treatment of certain activities over others and 

by reducing the scope of distortionary behavioral responses to taxation. If the provisions do not 

correct market failures, however, they may create or exacerbate preferential treatment of certain 

activities over others, causing an inefficient allocation of resources. A less efficient allocation of 

resources leaves society with a lower level of output of goods and services than it would enjoy in 

the absence of the distortions caused by the tax system. 

The 2017 Tax Act generally reduced the top marginal corporate income tax rate from 

35 percent to 21 percent108 and generally reduced marginal individual income tax rates. A 

reduction in marginal income tax rates generally reduces the value to taxpayers of an exclusion 

or deduction from gross income, and reduces by the same amount the revenue cost to the 

government of providing such exclusion or deduction.

The extension of expired cost recovery provisions would interact with the cost recovery 

provisions of the 2017 Tax Act. To the extent expired provisions relate to property that is 

eligible for the special allowance for depreciation (commonly referred to as “bonus 

depreciation”), the revenue cost of extension is diminished during the period in which such 

property would otherwise be eligible for bonus depreciation, as is any economic effect on the 

level of investment in such property.

 107 For a more detailed discussion of the user cost of capital, see Joint Committee on Taxation, Economic 

Growth and Tax Policy (JCX-19-17), May 16, 2017, pp. 9-21. 

108 For corporations with taxable income between $100,000 and $335,000, the marginal tax rate under 

prior law was 39 percent. For corporations with taxable income between $15 million and $18,333,333, the marginal 

tax rate under prior law was 38 percent. For corporations with taxable income less than $50,000, which is less than 

one percent of corporations, the marginal tax rate increased from 15 percent to 21 percent. 
28

1. Credit for certain expenditures for maintaining railroad tracks (sec. 45G)

• A business tax credit is allowed for 50 percent of qualified railroad track maintenance 

expenditures paid or incurred by an eligible taxpayer during taxable years beginning 

before January 1, 2018. Qualified railroad track maintenance expenditures are gross 

expenditures (whether or not otherwise chargeable to capital account) for maintaining 

railroad track (including roadbed, bridges, and related track structures) owned or 

leased as of January 1, 2015, by a Class II or Class III railroad (determined without 

regard to any consideration for such expenditure given by the Class II or Class III 

railroad that made the assignment of such track). The credit is limited to the product 

of $3,500 times the number of miles of railroad track (1) owned or leased by an 

eligible taxpayer as of the close of its taxable year, and (2) assigned to the eligible 

taxpayer by a Class II or Class III railroad that owns or leases such track at the close 

of the taxable year. An eligible taxpayer is any Class II or Class III railroad, and any 

person (including a Class I railroad) that transports property using the rail facilities of 

a Class II or Class III railroad or that furnishes railroad-related property or services to 

a Class II or Class III railroad, but only with respect to miles of railroad track 

assigned to such person by such railroad under the provision. 

• The provision was enacted in the American Jobs Creation Act of 2004109 for qualified 

railroad track maintenance expenditures paid or incurred during taxable years 

beginning after December 31, 2004, and before January 1, 2008.

• The Gulf Opportunity Zone Act of 2005110 clarified that (1) Class II and Class III 

railroads that operate track under a lease are not required to obtain assignment from 

the track owner in order to utilize or assign the credit; (2) a Class I railroad is not 

treated as a Class II or Class III railroad for purposes of the credit (and is not eligible 

to claim the credit with respect to track it owns) by reason of performing track 

maintenance services (on the same or different track) for a Class II or Class III 

railroad; (3) a track mile may be assigned only once per tax year, effective as of the 

close of the tax year; (4) any track mile assigned may not also be taken into account 

by the assignor taxpayer for the tax year; and (5) an assigned track mile is taken into 

account by the assignee in the tax year that includes the effective date of the 

assignment.

• The Tax Relief and Healthcare Act of 2006111 modified the definition of qualified 

railroad track expenditures, so that the term means gross expenditures (whether or not 

otherwise chargeable to capital account) for maintaining railroad track (including 

roadbed, bridges, and related track structures) owned or leased as of January 1, 2005, 

by a Class II or Class III railroad (determined without regard to any consideration for 

such expenditures given by the Class II or Class III railroad that made the assignment 

 109 Pub. L. No. 108-357.

110 Pub. L. No. 109-135.

111 Pub. L. No. 109-432.
29

of such track), effective for expenditures paid or incurred in taxable years beginning 

after December 31, 2004, and before January 1, 2008.

• The Tax Extenders and Alternative Minimum Tax Relief Act of 2008112 permitted the 

railroad track maintenance credit to reduce a taxpayer’s tax liability below its 

tentative minimum tax, effective for credits determined under section 45G in taxable 

years beginning after December 31, 2007, and to carrybacks of such credits.

• The Consolidated Appropriations Act, 2016113 modified the definition of qualified 

railroad track maintenance expenditures to include gross expenditures (whether or not 

otherwise chargeable to capital account) for maintaining railroad track (including 

roadbed, bridges, and related track structures) owned or leased as of January 1, 2015, 

by a Class II or Class III railroad (determined without regard to any consideration for 

such expenditure given by the Class II or Class III railroad that made the assignment 

of such track), effective for expenditures paid or incurred in taxable years beginning 

after December 31, 2015. 

• The Bipartisan Budget Act provided a safe harbor rule that allows assignments, 

including related expenditures paid or incurred, for taxable years ending after January 

1, 2017, and before January 1, 2018, to be treated as effective as of the close of that 

taxable year if made pursuant to a written agreement entered into no later than May 

10, 2018.

• The provision has been extended six times, most recently by the Bipartisan Budget 

Act.

2. Three-year depreciation for race horses two years old or younger (sec. 168(e)(3)(A)(i))

• The provision assigns a recovery period of three years for any race horse placed in 

service prior to January 1, 2018, that is two years old or younger at the time it is 

placed in service. Subsequently, the three-year recovery period for race horses will 

only apply to those that are more than two years old when placed in service by the 

purchaser after December 31, 2017, and a seven-year recovery period will apply to 

those that are two years old or younger when placed in service after such date.

• The provision was enacted in the Heartland, Habitat, Harvest, and Horticulture Act of 

2008114 for property placed in service after December 31, 2008, and before January 1, 

2014.

• The provision has been extended three times, most recently by the Bipartisan Budget 

Act.

 112 Pub. L. No. 110-343.

113 Pub. L. No. 114-113.

114 Pub. L. No. 110-246.
30

• The 2017 Tax Act provides 100-percent bonus depreciation (subject to a phasedown) 

for qualified property acquired and placed in service after September 27, 2017.115 

Qualified property includes MACRS property with an applicable recovery period of 

20 years or less, and therefore generally includes race horses, regardless of age when 

placed in service.

3. Seven-year recovery period for motorsports entertainment complexes 

(sec. 168(e)(3)(C)(ii) and (i)(15))

• The provision assigns a seven-year recovery period for any motorsports entertainment 

complex placed in service prior to January 1, 2018. A motorsports entertainment 

complex is a racing track facility that (i) is permanently situated on land, and 

(ii) during the 36-month period following its placed-in-service date hosts one or more 

racing events for automobiles (of any type), trucks, or motorcycles that are open to 

the public for the price of admission. The term motorsports entertainment complex 

also includes ancillary facilities, land improvements (e.g., parking lots, sidewalks, 

waterways, bridges, fences, and landscaping), support facilities (e.g., food and 

beverage retailing, souvenir vending, and other nonlodging accommodations), and 

appurtenances associated with such facilities and related attractions and amusements 

(e.g., ticket booths, race track surfaces, suites and hospitality facilities, grandstands 

and viewing structures, props, walls, facilities that support the delivery of 

entertainment services, other special purpose structures, facades, shop interiors, and 

buildings). Such ancillary and support facilities must be owned by the taxpayer who 

owns the complex and be provided for the benefit of patrons of the complex. A 

motorsports entertainment complex does not include any transportation equipment, 

administrative services assets, warehouses, administrative buildings, hotels, or 

motels.

• The provision was enacted in the American Jobs Creation Act of 2004116 for property 

placed in service after October 22, 2004, and before January 1, 2008.

• The provision has been extended six times, most recently by the Bipartisan Budget 

Act.

• The 2017 Tax Act provides 100-percent bonus depreciation (subject to a phasedown) 

for qualified property acquired and placed in service after September 27, 2017.117 

Qualified property includes MACRS property with an applicable recovery period of 

20 years or less, and therefore generally includes motorsports entertainment 

complexes placed in service before 2018. After 2017, a racing track facility will have 

to determine the proper recovery period on an asset-by-asset basis as racing track 

 115 In general, the 100-percent allowance is phased down by 20 percent per calendar year for qualified 

property placed in service after December 31, 2022. See sec. 168(k).

116 Pub. L. No. 108-357.

117 In general, the 100-percent allowance is phased down by 20 percent per calendar year for qualified 

property placed in service after December 31, 2022. See sec. 168(k).
31

assets are placed in service (e.g., a 39-year recovery period will generally apply to the 

stadium and a 15-year recovery period will generally apply to any land 

improvements). Racing track facility assets with a recovery period of 20 years or less 

will generally be eligible for bonus depreciation if placed in service before January 1, 

2027. 

4. Accelerated depreciation for business property on an Indian reservation (sec. 168(j))

• The provision provides the following accelerated recovery periods for certain 

property used in connection with the conduct of a trade or business within an Indian 

reservation and placed in service before January 1, 2018:

3-year property 2 years

5-year property 3 years

7-year property 4 years

10-year property 6 years

15-year property 9 years

20-year property 12 years

Nonresidential real property 22 years118

• “Qualified Indian reservation property” eligible for accelerated depreciation includes 

property described in the table above that is: (1) used by the taxpayer predominantly 

in the active conduct of a trade or business within an Indian reservation; (2) not used 

or located outside the reservation on a regular basis; (3) not acquired (directly or 

indirectly) by the taxpayer from a person who is related to the taxpayer; and (4) is not 

property placed in service for purposes of conducting gaming activities. Certain 

“qualified infrastructure property” may be eligible for the accelerated depreciation 

even if located outside an Indian reservation, provided that the purpose of such 

property is to connect with qualified infrastructure property located within the 

reservation (e.g., roads, power lines, water systems, railroad spurs, and 

communications facilities). The depreciation deduction allowed for regular tax 

purposes is also allowed for purposes of the alternative minimum tax. A taxpayer 

may annually make an irrevocable election out of section 168(j) on a class-by-class 

basis.

 118 Section 168(j)(2) does not provide shorter recovery periods for water utility property, residential rental 

property, or railroad grading and tunnel bores.
32

• The provision was enacted in the Omnibus Budget Reconciliation Act of 1993119 for 

property placed in service after December 31, 1993 and before January 1, 2004. 

• The provision was modified by the Taxpayer Relief Act of 1997,

120 which clarified 

the definition of “Indian reservation” and made such language generally effective as 

if included in the Omnibus Budget Reconciliation Act of 1993.

• The provision was modified by the Consolidated Appropriations Act, 2016,

121 which 

provided that a taxpayer may annually make an irrevocable election out of 

section 168(j) on a class-by-class basis for qualified Indian reservation property 

placed in service in taxable years beginning after December 31, 2015.

• The Tax Technical Corrections Act of 2018122 clarified that if a taxpayer elects out of 

the otherwise applicable accelerated recovery periods for qualified Indian reservation 

property, no alternative minimum tax adjustment applies.

• The provision has been extended nine times, most recently by the Bipartisan Budget 

Act.

• The 2017 Tax Act provides 100-percent bonus depreciation (subject to a phasedown) 

for qualified property acquired and placed in service after September 27, 2017.123

Qualified property includes MACRS property with an applicable recovery period of 

20 years or less, and therefore generally includes qualified Indian reservation property 

other than nonresidential real property.

5. Energy efficient commercial buildings deduction (sec. 179D)

• A deduction of up to $1.80 per square foot of the building is allowed for the cost of 

energy efficient commercial building property relating to the (1) building envelope, 

(2) lighting, or (3) HVAC systems for buildings that meet specific energy standards, 

for property placed in service before January 1, 2018. If the entire building does not 

meet the specific energy standards, a partial deduction of up to $0.60 per square foot 

may be allowed for qualifying expenditures in each of the building subsystems listed 

above. If qualified property is installed on or in government-owned property the 

deduction may be allocated to the person primarily responsible for designing the 

property in lieu of the owner.

 119 Pub. L. No. 103-66.

120 Pub. L. No. 105-34.

121 Pub. L. No. 114-113.

122 Pub. L. No. 115-141.

123 In general, the 100-percent allowance is phased down by 20 percent per calendar year for qualified 

property placed in service after December 31, 2022. See sec. 168(k).
33

• The provision was first enacted in the Energy Policy Act of 2005124 for property 

placed in service after December 31, 2005, and before January 1, 2008.

• The provision has been extended five times, most recently by the Bipartisan Budget 

Act.

• The 2017 Tax Act provides section 179 expensing for certain qualified real property

(i.e., roofs, HVAC, fire protection and alarm systems, and security systems).

6. Election to expense advanced mine safety equipment (sec. 179E)

• The provision allows a taxpayer to elect to treat 50 percent of the cost of any qualified 

advanced mine safety equipment property as an expense in the taxable year in which 

the equipment is placed in service. Qualified advanced mine safety equipment 

property means any advanced mine safety equipment property for use in any 

underground mine located in the United States the original use of which commences 

with the taxpayer and which is placed in service before January 1, 2018. Advanced 

mine safety equipment property means any of the following: (1) emergency 

communication technology or devices used to allow a miner to maintain constant 

communication with an individual who is not in the mine; (2) electronic identification 

and location devices that allow individuals not in the mine to track at all times the 

movements and location of miners working in or at the mine; (3) emergency oxygengenerating, self-rescue devices that provide oxygen for at least 90 minutes; (4) prepositioned supplies of oxygen providing each miner on a shift the ability to survive 

for at least 48 hours; and (5) comprehensive atmospheric monitoring systems that 

monitor the levels of carbon monoxide, methane, and oxygen that are present in all 

areas of the mine and that can detect smoke in the case of a fire in a mine.

• The provision was enacted by the Tax Relief and Health Care Act of 2006125 for costs 

paid or incurred after December 20, 2006, and property placed in service before 

January 1, 2009. 

• The provision has been extended six times, most recently by the Bipartisan Budget 

Act.

• The 2017 Tax Act provides 100-percent bonus depreciation (subject to a phasedown) 

for qualified property acquired and placed in service after September 27, 2017.126 

Qualified property includes MACRS property with an applicable recovery period of 

20 years or less, and therefore generally includes mine safety equipment.

 124 Pub. L. No. 109-58.

125 Pub. L. No. 109-432.

126 In general, the 100-percent allowance is phased down by 20 percent per calendar year for qualified 

property placed in service after December 31, 2022. See sec. 168(k).
34

7. Expensing of certain qualified film and television and live theatrical productions 

(sec. 181)

• The provision allows taxpayers to elect to deduct up to $15 million of the aggregate 

production costs ($20 million if a significant amount of the production costs are 

incurred in areas eligible for designation as a low-income community or eligible for 

designation by the Delta Regional Authority as a distressed county or isolated area of 

distress) of any qualified film, television, or live theatrical production commencing 

prior to January 1, 2018, in the year the costs are paid or incurred by the taxpayer, in 

lieu of capitalizing the costs and recovering them through depreciation allowances

once the production is placed in service. A qualified film, television, or live theatrical

production means any production of a motion picture (whether released theatrically or 

directly to video cassette or any other format), television program, or live-staged play

if at least 75 percent of the total compensation expended on the production is for 

services performed in the United States by actors, directors, producers, and other 

relevant production personnel. 

• The provision was enacted in the American Jobs Creation Act of 2004127 for qualified 

film and television productions commencing after October 22, 2004, and before 

January 1, 2009. 

• The Gulf Opportunity Zone Act of 2005128 clarified that the $15-million production 

cost limitation and the 75-percent qualified compensation requirement are determined 

for television series on an episode-by-episode basis (not an aggregate basis), and 

added rules for recapture as ordinary income of the deduction under section 181 in a 

manner similar to the recapture rules applicable to expensing under section 179.

• The Tax Extenders and Alternative Minimum Tax Relief Act of 2008129 modified the 

dollar limitation such that the first $15 million ($20 million for productions in lowincome communities or distressed area or isolated area of distress) of an otherwise 

qualified film or television production may be treated as an expense in cases where 

the aggregate cost of the production exceeds the dollar limitation. This modification 

applies to qualified film and television productions commencing after December 31, 

2007.

• The Consolidated Appropriations Act, 2016130 expanded eligible productions to 

include qualified live theatrical productions commencing after December 31, 2015. 

A qualified live theatrical production means any live-staged production of a play 

(with or without music) that is derived from a written book or script and is produced 

or presented by a taxable entity in any venue which has an audience capacity of not 

more than 3,000, or a series of venues the majority of which have an audience 

 127 Pub. L. No. 108-357.

128 Pub. L. No. 109-135.

129 Pub. L. No. 110-343.

130 Pub. L. No. 114-113.
35

capacity of not more than 3,000, if at least 75 percent of the total compensation 

expended on the production was for services performed in the United States by actors, 

production personnel, directors, and producers. In addition, qualified live theatrical 

productions include any live-staged production which is produced or presented by a 

taxable entity no more than 10 weeks annually in any venue that has an audience 

capacity of not more than 6,500.

• The provision has been extended six times, most recently by the Bipartisan Budget 

Act.

• The 2017 Tax Act expands qualified property eligible for 100-percent bonus 

depreciation (subject to a phasedown) to include qualified film, television, and live 

theatrical productions acquired and placed in service after September 27, 2017, for 

which a deduction otherwise would have been allowable under section 181 without 

regard to the dollar limitation or termination of such section.

131 A qualified

production is considered placed in service at the time of initial release, broadcast, or 

live-staged performance (i.e., at the time of the first commercial exhibition, broadcast, 

or live-staged performance of a production to an audience).

 131 In general, the 100-percent allowance is phased down by 20 percent per calendar year for qualified 

property placed in service after December 31, 2022. See sec. 168(k).
36

F. Individual, Excise Taxes, and Other Temporary Policies

1. Discharge of indebtedness on principal residence excluded from gross income of 

individuals (sec. 108(a)(1)(E))

• A maximum exclusion from gross income of $2,000,000 is provided for any 

discharge of indebtedness income by reason of a discharge (in whole or in part) of 

qualified principal residence indebtedness. In general, the discharged indebtedness 

eligible for the exclusion must be indebtedness incurred in the acquisition, 

construction, or substantial improvement of the principal residence of the individual 

and secured by the residence. The provision does not apply to discharges after 

December 31, 2017, or to discharges subject to an arrangement that is entered into 

and evidenced in writing after such date. 

• The provision was enacted in the Mortgage Forgiveness Debt Relief Act of 2007132

and effective for discharges of indebtedness occurring on or after January 1, 2007,

and before January 1, 2010.

• The provision has been extended five times, most recently by the Bipartisan Budget 

Act.

2. Premiums for mortgage insurance deductible as interest that is qualified residence 

interest (sec. 163(h)(3)(E))

• Premiums paid or accrued for qualified mortgage insurance by a taxpayer during the 

taxable year in connection with acquisition indebtedness on a principal residence or 

second home of the taxpayer is treated as if it were deductible qualified residence 

interest. The deduction is phased out for taxpayers with adjusted gross income over 

$100,000 ($50,000 if married filing separately). The provision does not apply to 

amounts paid or accrued after December 31, 2017, or properly allocable to any period 

after such date. 

• The provision was enacted in the Tax Relief and Health Care Act of 2006133 with 

respect to mortgage contracts issued after December 31, 2006, effective for amounts 

paid or accrued after December 31, 2006, and before January 1, 2008, that are 

properly allocable to such period.

• The provision has been extended six times, most recently by the Bipartisan Budget 

Act. 

• The 2017 Tax Act modified the deduction for home mortgage interest such that a 

taxpayer may claim a deduction for interest paid on up to $750,000 of acquisition 

indebtedness, for indebtedness incurred after December 15, 2017. For indebtedness 

incurred on or before December 15, 2017, the deduction may be claimed with respect 

to interest paid on up to $1,000,000 in acquisition indebtedness.

 132 Pub. L. No. 110-142.

133 Pub. L. No. 109-432.
37

3. Above-the-line deduction for qualified tuition and related expenses (sec. 222)

• An individual is allowed an above-the-line deduction for qualified tuition and related 

expenses for higher education paid by the individual during the taxable year. The 

maximum deduction is $4,000 for taxpayers with adjusted gross income of $65,000 or 

less ($130,000 for joint filers) and $2,000 for taxpayers with adjusted gross income 

above $65,000 ($130,000 for joint filers) but less than or equal to $80,000 ($160,000 

for joint filers). No deduction is allowed for taxpayers with adjusted gross income 

above $80,000 ($160,000 for joint filers). The provision expired for taxable years 

beginning after December 31, 2017. 

• Because both the American Opportunity credit (in the case of tuition for the first four 

years of post-secondary education) and the Lifetime Learning credit (in the case of 

tuition paid for all post-secondary education) are permanent features of the Code, and 

generally offer taxpayers a larger tax benefit than the tuition deduction, many 

taxpayers use those provisions rather than the deduction for tuition.134

• The provision was enacted in Economic Growth and Tax Relief Reconciliation Act of 

2001135 for payments made in taxable years beginning after December 31, 2001, and 

before January 1, 2006. 

• The provision has been extended seven times, most recently by the Bipartisan Budget 

Act. 

4. Look-through treatment of payments between related controlled foreign corporations 

under the foreign personal holding company rules (sec. 954(c)(6)(C))

• Certain payments of dividends, interest, rents, and royalties that would otherwise be 

included in foreign personal holding company income (and thus subpart F income) 

may be excepted if the payments are received from a related controlled foreign 

corporation and are properly attributable and allocable to income of the payor that is 

neither subpart F income nor treated as effectively connected to a U.S. trade or 

business. The provision expires for taxable years of foreign corporations beginning 

after December 31, 2019, and to taxable years of United States shareholders with or 

within which such taxable years of foreign corporations end. 

 134 For example, if extended through December 31, 2018, a taxpayer claiming the deduction for tuition and 

fees would be in a tax bracket no higher than 22 percent. This translates to a maximum tax benefit of $880, on 

$4,000 of tuition payments. Taxpayers eligible to claim the American Opportunity credit (i.e., those paying tuition 

for the first four years of postsecondary education) would receive a tax credit worth $2,500 for the same tuition 

payment. Taxpayers eligible to receive the Lifetime Learning credit (for tuition payments beyond the first four 

years of postsecondary education), however, would be eligible for only an $800 credit. Nonetheless, if tuition 

payments exceed $4,000, the value of the Lifetime Learning credit can exceed the deduction for tuition and fees. 

135 Pub. L. No. 107-16. 
38

• The provision was enacted in the Tax Increase Prevention and Reconciliation Act of 

2005,136 for taxable years of foreign corporations beginning after December 31, 2005, 

and before January 1, 2009, and to taxable years of United States shareholders with or 

within which such taxable years of foreign corporations end. 

• The provision has been extended five times, most recently in the Consolidated 

Appropriations Act, 2016.

137

5. Excise taxes on beer, wine, and distilled spirits 

a. Special rule for the production period for beer, wine, and distilled spirits 

(sec. 263A(f)(4))

• For interest costs paid or accrued before January 1, 2020, the provision excludes

the aging periods for beer,138 wine,139 and distilled spirits140 from the production 

period used for purposes of the interest capitalization rules. Under the provision, 

producers of beer, wine, and distilled spirits are able to deduct interest (subject to 

any other applicable limitation) attributable to a shorter production period that 

does not include the aging period of the beer, wine, or distilled spirits.

• The provision was enacted in the 2017 Tax Act for interest costs paid or accrued 

after December 31, 2017, and before January 1, 2020.

• The provision has not previously been extended.

b. Provisions modifying the rates of taxation of beer and certain other rules

(secs. 5051 and 5414)

• Section 5051 imposes an excise tax on beer. Liability for the excise tax on beer 

arises when the beer is brewed or imported but is not determined and payable 

until the beer is removed from the brewery or customs custody for consumption 

or sale. In the case of brewers who produce fewer than two million barrels of 

beer during a calendar year, the first 60,000 barrels domestically produced is 

taxed at a lower rate.

• The 2017 Tax Act temporarily reduces the excise tax rate on beer per barrel from 

$18 per barrel to $16 per barrel on the first six million barrels brewed or imported 

and then $18 per barrel on barrels brewed or imported in excess of that amount. 

In the case of brewers who satisfy the two-million-barrel limitation, the 2017 Tax 

 136 Pub. L. No. 109-222. 

137 Pub. L. No. 114-113.

138 As defined in section 5052(a).

139 As defined in section 5041(a).

140 As defined in section 5002(a)(8), except such spirits that are unfit for use for beverage purposes.
39

Act temporarily further reduces the excise tax rate on the first 60,000 barrels 

domestically produced from $7 per barrel to $3.50 per barrel. The reduced excise 

tax rates on beer are in effect for beer removed after December 31, 2017, and 

before January 1, 2020. 

• Section 5414 allows beer to be removed from one brewery to another brewery 

belonging to the same brewer without payment of tax. The 2017 Tax Act 

temporarily relaxes these shared ownership requirements and allows beer to be 

transferred from one brewery to an unrelated brewery without payment of tax, 

provided that the transferee brewery accepts responsibility for the ultimate 

payment of tax. This provision is in effect for any calendar quarters beginning 

after December 31, 2017, and before January 1, 2020.

• The provisions have not previously been extended.

c. Provisions modifying the rates of taxation of wine and certain other rules

(sec. 5041)

• Section 5041 imposes an excise tax on wine. Liability for the excise tax on wine 

arises when the wine is produced or imported but is not determined and payable 

until the wine is removed from the bonded wine cellar or winery or customs 

custody for consumption or sale. Excise taxes on wine are imposed on the wine 

according to the wine’s alcohol content and carbonation levels. Wine producers 

who produce not more than 250,000 wine gallons of wine during the calendar 

year are allowed a 90-cents-per-gallon credit against the wine excise tax on the 

first 100,000 gallons of non-sparkling wine domestically produced and removed 

during a calendar year.141 

• The 2017 Tax Act temporarily modifies the credit against wine excise tax to a 

credit, available to all wine producers, domestic or foreign, of $1.00 per wine 

gallon for the first 30,000 wine gallons, 90 cents per wine gallon on the next 

100,000 wine gallons, and 53.5 cents per wine gallon on the next 620,000 wine 

gallons.

142

• The 2017 Tax Act also temporarily allows the credit against wine excise tax to be 

applied to the tax liability on sparkling wine.

• The 2017 Tax Act also temporarily increases the allowed alcohol by volume for 

the lowest tier of the excise tax on wine from 14 percent of alcohol by volume to 

16 percent of alcohol by volume.

 141 Producers of hard cider who produce not more than 250,000 wine gallons of hard cider during the 

calendar year are allowed a 5.6-cents-per-gallon credit against the wine excise tax on the first 100,000 gallons of 

hard cider domestically produced and removed during a calendar year.

142 The 2017 Tax Act temporarily modifies the credit against wine excise tax for hard cider to a credit, 

available to all hard cider producers and importers, of 6.2 cents per wine gallon for the first 30,000 wine gallons, 5.6 

cents per wine gallon on the next 100,000 wine gallons, and (for all hard cider producers) 3.3 cents per wine gallon 

on the next 620,000 wine gallons. 
40

• The 2017 Tax Act also temporarily designates mead and certain sparkling, lowalcohol-by-volume wines to be taxed at the lowest rate of excise tax on wine.

• The 2017 Tax Act changes apply for wine removed after December 31, 2017, and 

before January 1, 2020.

• The provision has not previously been extended.

d. Provisions modifying the rates of taxation of distilled spirits and certain other 

rules (secs. 5001 and 5212)

• Section 5001 imposes an excise tax on distilled spirits. Liability for the excise tax 

on distilled spirits arises when the distilled spirits are produced or imported but is 

not determined and payable until bottled distilled spirits are removed from the 

bonded premises of the distilled spirits plant or from customs custody for 

consumption or sale. 

• The 2017 Tax Act temporarily reduces the excise tax on distilled spirits from 

$13.50 per proof gallon to $2.70 per proof gallon on the first 100,000 proof 

gallons of distilled spirits produced, $13.34 for all proof gallons in excess of that 

amount but below 22,130,000 proof gallons, and $13.50 thereafter. The reduced 

excise tax on distilled spirits applies to distilled spirits, produced domestically or 

abroad, removed after December 31, 2017, and before January 1, 2020.

• Section 5212 allows distillers to transfer bulk distilled spirits between bonded 

premises without payment of tax. The 2017 Tax Act temporarily allows distillers 

to transfer distilled spirits in bond in containers other than bulk containers without 

payment of tax, for distilled spirits transferred in bond after December 31, 2017, 

and before January 1, 2020. 

• The provisions have not previously been extended.

e. Simplification of rules regarding records, statements, and returns (sec. 5555)

• The provision imposes a requirement that persons liable for the excise tax on beer, 

wine, and distilled spirits keep certain records, render statements, and make 

returns as prescribed by regulation. The Bipartisan Budget Act temporarily 

modifies this provision by allowing brewers to employ a unified system for any 

records, statements, and returns required to be kept, rendered, or made under the 

section, for calendar quarters beginning after February 9, 2018 (the date of 

enactment), and before January 1, 2020.

• The provision has not previously been extended.

6. Oil Spill Liability Trust Fund financing rate (sec. 4611)

• Before December 31, 2018, the Oil Spill Liability Trust Fund financing rate (the “oil 

spill tax”) was nine cents per barrel and generally applied to crude oil received at a 

U.S. refinery and to petroleum products entered into the United States for 

consumption, use, or warehousing. 
41

• The oil spill tax was enacted at five cents per barrel by the Omnibus Budget 

Reconciliation Act of 1989.143 The tax applied from January 1, 1990, through 

December 31, 1994. 

• The oil spill tax was temporarily reinstated at five cents per barrel by the Energy 

Policy Act of 2005.144 The tax took effect on April 1, 2006, and was scheduled to 

expire after December 31, 2014. The Emergency Economic Stabilization Act of 

2008145 extended the tax through December 31, 2017, and increased the rate generally 

to eight cents per barrel and, for calendar year 2017 only, to nine cents per barrel. 

• The oil spill tax was most recently extended by the Bipartisan Budget Act. 

 143 Pub. L. No. 101-239. 

144 Pub. L. No. 109-58. 

145 Pub. L. No. 110-343. 
42

G. Disaster Tax Relief

Congress has often provided targeted tax relief for individuals and businesses affected by 

certain major disasters. The form of tax relief has varied, but generally disaster-relief tax 

provisions attempt to provide monetary relief to affected taxpayers and to encourage investment 

in areas with affected taxpayers.

By simultaneously increasing a taxpayer’s expenses (e.g., by damaging or destroying a 

taxpayer’s property) while decreasing a taxpayer’s income (e.g., by damaging or destroying a 

taxpayer’s place of employment), disasters may leave many taxpayers with limited resources in a 

time of need. For that reason, for many recent major disasters, Congress has provided individual 

income tax relief, such as allowing penalty-free withdrawals from retirement plans, providing 

more generous treatment of personal casualty losses, and allowing income smoothing for 

determining earned income for purposes of the earned income tax credit (“EITC”) and the 

additional child tax credit (“ACTC”). 

As disasters may damage or destroy businesses and homes in affected areas, various 

disaster-relief tax provisions have attempted to direct investment to areas affected by disasters to 

support rebuilding efforts. For example, both the Gulf Opportunity Zone Act of 2005146 and the 

Heartland Disaster Tax Relief Act of 2008147 had provisions relating to tax-exempt bonds and 

the low-income housing tax credit (“LIHTC”), which were tied to specific areas affected by 

major disasters.

One question is whether Congress should address each disaster individually or whether 

the Code should include a set of permanent disaster-relief tax provisions. An argument against 

permanent provisions is that each disaster is unique and may affect taxpayers and local 

economies in different ways, requiring in each case a targeted approach. Additionally, the 

appetite for tax expenditures may differ across time. For example, the Gulf Opportunity Zone 

Act of 2005 had provisions relating to tax-exempt bonds, LIHTC, penalty-free withdrawals from 

retirement plans, personal casualty losses, and income smoothing for purposes of the EITC and 

ACTC (all described above), as well as special rules for expensing and net operating loss 

carrybacks for small timber producers, among many others. By contrast, the Disaster Tax Relief 

and Airport and Airway Extension Act of 2017,148 which similarly applied to hurricanes 

affecting the Eastern United States, enacted only the provisions dealing with penalty-free 

withdrawals, casualty losses, and income smoothing.

An argument for a set of permanent disaster-relief tax provisions is that taxpayers would 

know with certainty what tax relief to expect in the event they were affected by a disaster. 

Permanent provisions triggered by executive declarations of major disasters also would 

accelerate the provision of relief; in the absence of permanent provisions, taxpayers must wait 

 146 Pub. L. No. 109-135.

147 Pub. L. No. 110-343.

148 Pub. L. No. 115-63.
43

for Congressional action, which may, for many reasons be delayed. Finally, the more recent 

disaster-relief tax provisions have been substantially identical. For example, the disaster-relief 

tax provisions in the Bipartisan Budget Act of 2018149 are the same as those in the Disaster Tax 

Relief and Airport and Airway Extension Act of 2017, but applicable to different major disasters. 

Another consideration is whether tax relief is the most efficient way to provide disaster 

relief. While disaster-relief tax provisions can be viewed as complementary to Federal 

Emergency Management Agency (“FEMA”) individual assistance and other forms of Federal 

disaster relief, the tax system in particular may not be the best or fastest way to provide cash to 

affected individuals and businesses. While those individuals with tax liability may be able to 

adjust withholding to take immediate advantage of tax relief, refundable tax credits are paid only 

after filing a tax return the next year. Provisions that allow individual taxpayers to access their 

own tax-advantaged accounts without penalty, such as retirement funds, only assist those with 

sufficient funds in tax-advantaged accounts and may undermine the original purpose of the taxadvantaged account (i.e., to encourage saving for retirement). If cash assistance is the most 

direct way to address short-term liquidity constraints of affected individuals and businesses, 

policymakers may want to direct Federal resources to increase the amount and speed of delivery 

of individual assistance paid by FEMA or reduce the interest rate on low-interest disaster loans 

from the U.S. Small Business Administration, rather than using Federal resources for tax relief.

A third consideration is finding the appropriate trigger for disaster-relief tax provisions. 

Congress has generally provided disaster relief only to disasters for which a major disaster has 

been declared by the President under section 401 of the Robert T. Stafford Disaster Relief and 

Emergency Assistance Act (the “Disaster Relief Act”). There may be smaller-scale events that 

do not receive major disaster status or do not receive any Federal disaster declaration. While 

those events may affect fewer taxpayers, they may nonetheless greatly affect certain taxpayers. 

In such cases losses to affected taxpayers may be as large as those caused by major disasters.

The provisions discussed below are standard provisions that have been enacted in 

response to several recent major disasters. The provisions use certain terms such as qualified 

disaster area, qualified disaster zone, qualified disaster, and incident period.150 A qualified 

disaster area is an area with respect to which a major disaster has been declared by the President 

during a specified time period under section 401 of the Disaster Relief Act. A qualified disaster 

zone is that portion of the applicable qualified disaster area that has been determined by the 

President to warrant individual or individual and public assistance from the Federal government 

under the Disaster Relief Act by reason of the applicable qualified disaster. A qualified disaster 

is, with respect to the applicable qualified disaster area, the disaster by reason of which a major 

disaster was declared with respect to such area. The incident period is, with respect to the 

applicable qualified disaster, the period specified by FEMA as the period during which such 

disaster occurred.

 149 Pub. L. No. 115-123.

150 In certain cases, the name of the specific disaster or disasters may replace the phrase “qualified 

disaster” in those terms. 
44

1. Special disaster-related rules for use of retirement funds (secs. 72(t), 165, 401-403, 408, 

457, and 3405)

• A distribution from an eligible retirement plan151 generally is included in income in 

the year distributed. In addition, unless an exception applies for distributions before 

retirement, an additional 10-percent early withdrawal tax applies to the 

distribution.152 Employer-sponsored retirement plans may also provide loans to 

participants that are subject to various requirements in both form and operation (to 

avoid treatment as deemed distributions from the plan), including that the loan 

amount generally must not exceed the lesser of 50 percent of the participant’s account 

balance or $50,000 (taking into account outstanding balances of previous loans), and 

that the loan’s terms must provide for a repayment period generally not exceeding 

five years (except for a loan to purchase a home) and for level amortization of loan 

payments to be made not less frequently than quarterly.153 

• The provision provides various relief as follows. First, eligible retirement plans may 

permit “qualified disaster distributions,” and such distributions are excepted from the 

10-percent early withdrawal tax. A qualified disaster distribution only applies to a 

“qualified individual” (an individual whose principal place of abode at any time 

during the incident period is located in the qualified disaster area and who has 

sustained an economic loss as a result of the qualified disaster) and must be made 

during the period beginning on or after the first day of the incident period and ending 

180 days after the provision becomes effective. Qualified disaster distributions

cannot exceed $100,000 for any taxable year, less any such amounts received by the 

individual for all prior taxable years. Second, unless an individual elects otherwise, 

the individual includes income attributable to a qualified disaster distribution ratably 

over three years. Third, an individual may recontribute the amount of previously 

received qualified disaster distributions to an eligible retirement plan within three 

years. Fourth, if an individual received a distribution that is subject to certain 

requirements during a certain period (beginning 180 days before the first day of the 

incident period and ending 30 days after the last day of the incident period) that was 

to be used to purchase or construct a principal residence in a qualified disaster area, 

but such residence was not so purchased or constructed on account of the qualified 

disaster, then during the period beginning on the first day of the incident period and 

ending 180 days after the provision becomes effective, the individual may 

recontribute such amounts to an eligible retirement plan of which such individual is a 

beneficiary and to which a rollover contribution of such distribution could be made. 

Fifth, the provision increases the permitted maximum amount of plan loans for a 

 151 Eligible retirement plans include section 401(a) qualified retirement plans, section 403(b) tax-sheltered 

annuity plans, eligible deferred compensation plans of State or local government employers under section 457(b), 

and individual retirement arrangements under section 408. 

152 Sec. 72(t). The 10-percent early withdrawal tax does not apply to distributions from a governmental 

section 457(b) plan.

153 Sec. 72(p).
45

qualified individual to the lesser of 100 percent of the participant’s account balance or 

$100,000, for loans made during the 180-day period after the provision becomes 

effective, and the loan continues not to be treated as a distribution. Finally, in the 

case of a qualified individual who has an outstanding plan loan on or after the first 

day of an incident period with a repayment due date that occurs during the period 

beginning on or after the first day of the incident period and ending 180 days after the 

last day of such incident period, the provision delays the repayment due date for one 

year and adjusts any subsequent repayments to reflect such delay (but the repayment 

delay is disregarded in determining the five-year repayment period and term of the 

loan).

• Versions of this provision have been enacted in connection with specific disasters, 

including: Hurricanes Katrina, Rita, and Wilma;154 the 2007 Kansas storms and 

tornadoes;155 the 2008 Midwestern floods;156 certain disasters occurring in 2016;157

Hurricanes Harvey, Irma, and Maria;158 and certain California wildfires.159 

2. Employee retention credit for employers affected by qualified disasters (sec. 38)

• The provision provides a credit of 40 percent of the qualified wages (up to a 

maximum of $6,000 in qualified wages per employee) paid by an eligible employer to 

an eligible employee. The credit is treated as a current year business credit under 

section 38(b) and therefore is subject to the tax liability limitations of section 38(c). 

• An eligible employer is any employer that (1) conducted an active trade or business in 

a qualified disaster zone at any time during the incident period of the qualified 

disaster with respect to such qualified disaster zone and (2) with respect to which the 

trade or business described in (1) is inoperable on any day during the period 

beginning on the first day of the incident period of the qualified disaster and ending 

on a specified date, as a result of damage sustained by reason of the qualified disaster. 

An eligible employee is, with respect to an eligible employer, an employee whose 

principal place of employment, determined immediately before the qualified disaster, 

with such eligible employer was in the qualified disaster zone. An employee may not 

be treated as an eligible employee for any period with respect to an employer if such 

employer is allowed a credit under section 51, the work opportunity credit, with 

respect to the employee for the period.

 154 See former sec. 1400Q (as in effect before its repeal by Pub. L. No. 115-141, sec. 401(d)(6)(A)).

155 See Pub. L. No. 110-234, sec. 15345.

156 See Pub. L. No. 110-343, sec. 702(a)(1)(D).

157 See Pub. L. No. 115-97, sec. 11028.

158 See Pub. L. No. 115-63, sec. 502. 

159 See Pub. L. No. 115-123, secs. 20102 and 20201.
46

• Qualified wages are wages160 paid or incurred by an eligible employer with respect to 

an eligible employee during the period (1) beginning on the date on which the trade 

or business first became inoperable at the principal place of employment of the 

employee immediately before the qualified disaster and (2) ending on the earlier of 

(i) the date on which such trade or business has resumed significant operations at such 

principal place of employment or (ii) a date that is a specified number of days after 

the end of the disaster period. Qualified wages include wages paid without regard to 

whether the employee performs no services, performs services at a different place of 

employment than such principal place of employment, or performs services at such 

principal place of employment before significant operations have resumed.

• Versions of this provision have been enacted in connection with specific disasters, 

including: Hurricanes Katrina, Rita, and Wilma;161 the 2008 Midwestern floods;162

Hurricanes Harvey, Irma, and Maria;163 and certain California wildfires.164

3. Other disaster-related tax relief provisions

a. Temporary increase in limitation on qualified contributions (sec. 170)

• Taxpayers generally are permitted to deduct charitable contributions for federal 

income tax purposes. Charitable contributions by an individual taxpayer for a 

year are limited to a specified percentage of the individual’s contribution base, 

which is the taxpayer’s adjusted gross income for the year computed without 

regard to any net operating loss carryback to the year. The specified percentage 

ranges from 20 percent to 60 percent, depending on the type of property 

contributed and the type of donee organization. Charitable contributions by a 

corporate taxpayer generally are limited to 10 percent of the corporation’s taxable 

income for the year.

• The provision temporarily suspends the applicable percentage limits for qualified 

contributions. A qualified contribution generally means a charitable contribution 

(within the meaning of section 170(c)) if: (1) the contribution is paid in cash 

during the specified time period to an organization described in 

section 170(b)(1)(A) (generally, a “public charity”), other than a contribution to a 

supporting organization described in section 509(a)(3) or a donor advised fund as 

defined in section 4966(d)(2); (2) the contribution is made for relief efforts in one 

or more qualified disaster areas; (3) the taxpayer obtains appropriate 

 160 As defined in section 51(c)(1), but without regard to section 3306(b)(2)(B). 

161 See former sec. 1400R (as in effect before its repeal by Pub. L. No. 115-141, sec. 401(d)(6)(A)).

162 See Pub. L. No. 110-343, sec. 702(a)(1)(E).

163 See Pub. L. No. 115-63, sec. 503.

164 See Pub. L. No. 115-123, sec. 20103.
47

substantiation of the contribution; and (4) the taxpayer has elected application of 

the provision with respect to the contribution. Excess qualified contributions in a 

year generally may be carried forward to the next five succeeding years.

• Versions of this provision have been enacted in connection with specific disasters, 

including: Hurricanes Katrina, Rita, and Wilma;165 the 2008 Midwestern 

floods;166 Hurricanes Harvey, Irma, and Maria;167 and certain California 

wildfires.168

b. Special rules for disaster-related personal casualty losses (sec. 165)

• An individual taxpayer may claim an itemized deduction for a personal casualty 

loss only if such loss was attributable to a disaster declared by the President under 

section 401 of the Robert T. Stafford Disaster Relief and Emergency Assistance 

Act. All other personal casualty losses are deductible only to the extent that such 

losses do not exceed the individual’s personal casualty gains. Personal casualty 

losses attributable to a Federally-declared disaster are deductible only if they 

exceed $100 per casualty. In addition, aggregate net losses attributable to a 

Federally-declared disaster are deductible only to the extent they exceed 

10 percent of the individual taxpayer’s adjusted gross income.

• The provision provides that, in the case of a personal casualty loss that arose in a 

qualified disaster area on or after the first day of the incident period of the 

qualified disaster and that was attributable to such qualified disaster, such losses 

are deductible without regard to whether aggregate net losses exceed 10 percent 

of a taxpayer’s adjusted gross income. In order to be deductible, however, the 

losses must exceed $500 per casualty. Finally, such losses may be claimed in 

addition to the standard deduction and may be claimed by taxpayers subject to the 

alternative minimum tax.

• Versions of this provision have been enacted in connection with specific disasters, 

including: Hurricanes Katrina, Rita, and Wilma;169 the 2008 Midwestern 

floods;170 Hurricanes Harvey, Irma, and Maria;171 and certain California 

wildfires.172

 165 See former sec. 1400S(a) (as in effect before its repeal by Pub. L. No. 115-141, sec. 401(d)(6)(A)).

166 See Pub. L. No. 110-343, sec. 702(a)(1)(F).

167 See Pub. L. No. 115-63, sec. 504(a).

168 See Pub. L. No. 115-123, sec. 20104(a).

169 See former sec. 1400S(b) (as in effect before its repeal by Pub. L. No. 115-141, sec. 401(d)(6)(A)).

170 See Pub. L. No. 110-343, sec. 702(a)(1)(F).

171 See Pub. L. No. 115-63, sec. 504(b).

172 See Pub. L. No. 115-123, sec. 20104(b).
48

c. Special rule for determining earned income (secs. 24 and 32)

• Individual taxpayers may be eligible to claim the earned income tax credit 

(“EITC”) and the child tax credit (“CTC”). The amount of the EITC is in part 

based on the earned income of the taxpayer. The amount of the additional child 

tax credit (i.e., the refundable portion of the CTC) is also based on the earned 

income of the taxpayer. For purposes of both the EITC and additional child tax 

credit, earned income generally includes wages, salaries, tips, and other employee 

compensation, plus net earnings from self-employment.

• The provision permits qualified individuals to elect to calculate their EITC and 

additional child tax credit for an applicable taxable year using their earned income 

from the prior taxable year. Qualified individuals are permitted to make the 

election with respect to an applicable taxable year only if their earned income for 

such taxable year is less than their earned income for the preceding taxable year. 

Qualified individuals are (1) individuals who, at any time during the incident 

period of a qualified disaster, had their principal place of abode in the qualified 

disaster zone or (2) individuals who during any portion of such incident period 

were not in the qualified disaster zone but whose principal place of abode was in 

the qualified disaster area and were displaced from such principal place of abode 

by reason of the qualified disaster. An applicable taxable year is any taxable year 

that includes any portion of the incident period of a qualified disaster.

• Any election to use the prior year’s earned income under the provision applies 

with respect to both the EITC and additional child tax credit. For administrative 

purposes, the incorrect use on a return of earned income pursuant to an election 

under this provision is treated as a mathematical or clerical error. An election to 

use the prior year’s earned income is disregarded for purposes of calculating gross 

income in the election year. 

• Versions of this provision have been enacted in connection with specific disasters, 

including: Hurricanes Katrina, Rita, and Wilma;173 the 2008 Midwestern 

floods;174 Hurricanes Harvey, Irma, and Maria;175 and certain California 

wildfires.176

 173 See former sec. 1400S(d) (as in effect before its repeal by Pub. L. No. 115-141, sec. 401(d)(6)(A)).

174 See Pub. L. No. 110-343, sec. 702(a)(1)(F) and (d)(14).

175 See Pub. L. No. 115-63, sec. 504(c).

176 See Pub. L. No. 115-123, sec. 20104(c).