What’s inside the $622B tax deal

Congress’s top tax writers late Tuesday night unveiled a $622 billion tax bill after weeks of negotiations. 

The 233-page bill cements a host of tax breaks for individuals and businesses, with both parties scoring policy wins.

After House Ways and Means Committee Chairman Kevin Brady (R-Texas) said Tuesday night that the bill would provide about $650 billion in tax relief, the Joint Committee on Taxation (JCT) estimated Wednesday that the “tax extenders” package will cost about $622 billion over 10 years. The tax provisions in the related omnibus spending bill will cost an additional $58 billion over that time period, the JCT said.

Here’s a rundown of what’s inside the tax extenders legislation, which is expected to pass Congress later this week. 

Tax breaks extended indefinitely

Nearly two-dozen tax breaks are extended indefinitely in the bill, including six that provide relief for individuals and families.

In a win for Democrats, the legislation enshrines three tax breaks created by President Obama’s stimulus law: the Earned Income Tax Credit, the Child Tax Credit (CTC) and the American Opportunity Tax Credit. 

While Democrats, particularly in the House, were pushing for the CTC to be indexed to inflation, Republicans rejected taking that step.

Republicans only agreed to include the stimulus tax breaks after winning the inclusion of provisions intended to reduce improper payments. There are several “program integrity” measures in the bill, including three to prevent retroactive claims.

The package locks in place three other tax breaks for individuals: the deduction for classroom expenses used by teachers, the deduction for state and local sales taxes, and a tax exclusion related to mass transit.

The mass transit benefit is a win for the Senate’s third-ranking Democrat, Charles Schumer (N.Y.), who represents a state with many mass transit commuters. The state and local sales tax deduction is important for states without income taxes and was a priority of lawmakers, including Brady and Senate Minority Leader Harry Reid (D-Nev.).

Five tax incentives for charitable giving are in the bill, including a provision that allows individuals that are at least 70.5 years old to exclude distributions to charities from their Individual Retirement Accounts.

A number of business tax breaks are extended without an expiration date, including the research and development tax credit, the increased maximum amount that businesses can immediately expense for property described in section 179 of the tax code, and the “active financing exception,” which allows companies to avoid paying taxes on certain income earned overseas.

Lastly, the bill enshrines three incentives for real estate, including a provision that places the minimum low0income housing tax credit rate for new buildings at 9 percent of certain costs of the property.

Tax breaks extended through 2019 

Four tax breaks are extended through 2019: the new markets tax credit, the work opportunity tax credit, bonus depreciation and the controlled foreign corporations look-through rule. 

Tax breaks extended through 2016

Dozens of provisions that expired at the end of 2014 are extended through 2016. This motley crew includes tax breaks for NASCAR, horse racing and film and television productions that have been controversial in the past. Several energy tax breaks are also extended.

Two tax breaks concerning Puerto Rico, which has been struggling financially, are extended for two years. One allows income from the commonwealth to be eligible for the domestic production deduction. The other extends the $13.25 per-proof gallon excise tax amount paid to Puerto Rico and the Virgin Islands for rum imported into the United States, up from $10.50 per-proof gallon had there been no extension.

ObamaCare

The bill suspends ObamaCare’s 2.3 percent excise tax on medical devices for 2016 and 2017.

Tax administration

The package includes several reforms to the IRS, some of which are a response to the political-group targeting scandal.

The bill makes clear that an IRS employee should be fired for taking official action for political purposes. It also provides a streamlined recognition process for political organizations that are seeking to get 501(c)(4) tax-exempt status. Additionally, there are a number of provisions relating to the U.S. Tax Court.

Real estate investment trusts 

More than a dozen provisions in the bill pertain to real- estate investment trusts, aiming to clamp down on companies spinning off their real estate into new entities that are effectively tax exempt.

Miscellaneous 

The package makes improvements to section 529 college savings plans and allows people to exclude from income for tax purposes monetary awards they received for wrongful incarceration. 

In a win for Senate Finance Committee ranking member Ron Wyden (D-Ore.), the bill modifies the definition of hard cider for the purposes of alcohol excise taxes. The provision would allow more types of cider to be taxed at a reduced rate.

– This story was updated at 2:05 p.m.