Small Business Jobs Bill Provides Construction Incentives and Business Relief

The U.S. House of Representatives today cleared H.R. 5297, the Small Business Jobs Act, a bill that would make $30 billion in funds available to community banks to make loans to small businesses and provide roughly $15 billion in tax and other incentives for businesses of all sizes. The bill now goes to President Obama for his signature. Below are a few highlights of provisions in the measure of particular benefit to the construction industry. Increase of Section 179 Expensing and Expansion to Certain Real Property. Under current law, taxpayers may elect to write-off the costs of certain tangible personal property that is purchased for use in the active conduct of a trade or business in the year of acquisition in lieu or recovering these costs over time through depreciation. For the taxable year beginning in 2010, taxpayers may write-off up to $250,000 of these capital expenditures subject to a phase-out once these capital expenditures exceed $800,000.  After 2010, the thresholds revert to $25,000 and $200,000, respectively. This bill would increase the thresholds to $500,000 and $2,000,000 for the taxable years beginning in 2010 and 2011. Within those thresholds, this bill would allow taxpayers to expense up to $250,000 of the cost of qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property. Extension of Bonus Depreciation and Special Rule for Long-Term Contract Accounting. Businesses are allowed to recover the cost of capital expenditures over time according to a depreciation schedule. Congress temporarily allowed businesses to recover the costs of certain capital expenditures made in 2008 and 2009 more quickly than under ordinary depreciation schedules by permitting those businesses to immediately write-off 50 percent of the cost of depreciable property placed in service in those years. This bill extends the additional, first-year 50 percent depreciation for qualifying property purchased and placed in service in 2010. In addition, the bill includes a special rule for long-term contract accounting at AGC's request via the plan, Build Now for the Future. The provision decouples bonus depreciation from allocation of contract costs under the percentage of completion method rules for assets with a depreciable life of seven years or less in order to allow contractors that do not complete contracts within the same year in which they are entered into to benefit from bonus depreciation. Modify Section 6707A Penalty. The bill revises section 6707A of the Internal Revenue Code to make the penalty for failing to disclose a reportable transaction proportionate to the underlying tax savings. The penalty for failure to disclose reportable transactions to the IRS would be set at 75 percent of the tax benefit received. Reportable transactions are defined as investments in transactions that the IRS has identified as listed tax shelters or that have characteristics of tax shelters, including large losses or confidentiality agreements. The minimum penalty under this bill is $10,000 for corporations and $5,000 for individuals and the maximum penalty is $200,000 for corporations and $100,000 for individuals. The bill also requires the IRS to provide an annual report to the Senate Finance Committee and to the House Ways and Means Committee giving an account of certain tax-shelter related penalties asserted during the year. AGC supported inclusion of this provision to provide relief to contractors who face substantial section 6707A penalties. Remove Cellular Phones from "Listed Property." This provision would "delist" cell phones so their cost can be deducted or depreciated like other business property, without onerous recordkeeping requirements.