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What the PATH Act Means for the Construction Industry

Posted 5:00 AM by

While the holiday season is still fresh, now is a good time to reflect on the recent flurry of passed and proposed legislative activity impacting the construction industry.

As you are likely aware, President Obama signed significant tax legislation Dec. 18. The Protecting Americans from Tax Hikes Act of 2015 (PATH Act) should lay to rest much of the annual congressional wrangling that consistently resulted in one-year extensions on numerous tax items. Congress was adamant the 2015 legislation would make permanent, or eliminate, many of these so-called tax breaks.

Here are some items of particular interest to the construction, architectural, design and engineering industries:

  • Permanent extension of the Research and Development (R&D) tax credits
  • Availability of the R&D Credit to offset Alternative Minimum Tax for businesses with Gross Receipts less than $50 million
  • Availability for startup companies (under $5 million in revenues) to use the R&D credit to offset payroll taxes
  • Permanent expansion of Section 179 limits, where up to $500,000 of new equipment can be expensed and phase outs begin when capital expenditures exceed $2 million
  • Permanent inclusion of computer software and qualified leasehold improvements as qualifying Section 179 property (with a cap of $250,000 removed for real estate beginning in 2016)
  • Bonus depreciation extended (50% for 2015-2017, 40% in 2018, and 30% in 2019)
  • Deduction for energy efficient commercial buildings (Section 179D) extended through 2016
  • Inclusion of computer equipment and technology as a qualified expenditure from a Section 529 plan
  • Permanent extension allowing a tax-free distribution for individuals age 70.5 and older directly from an IRA to a qualified charity ($100,000 annual limit)
  • Permanent changes and extensions to numerous tax credits with restrictive income limits (i.e., American Opportunity Credit, Child Tax Credit and Earned Income Credit)

The R&D Credit is a valuable tool for many companies providing any design work. Contact your KSM advisor to ensure you have examined the benefits of this provision. Read a more comprehensive review on the PATH Act.

On a different note, Indiana continues to be a key player in transportation and logistics. The recently passed Highway Bill, more formally known as the Fixing America's Surface Transportation Act (FAST Act) should provide benefits to highway and rail contractors. Also, leaders in Indiana’s legislature, led by Speaker Bosma and Governor Pence, have proposed significant improvements to the current highway funding mechanisms. (Stay tuned during the upcoming legislative and election season!) To compete nationally and internationally, Indiana must invest in our transportation network.

Lastly, the Federal Reserve recently raised short-term interest rates and will continue to increase rates, albeit slowly, possibly one percentage point a year over the next three years. This increase was reflective of the current economic growth, and it is a tool to offset possible future inflation. Given the well-documented scarcity of skilled construction labor, wage inflation is likely. The construction, real estate and infrastructure industries are extremely capital intensive, thus higher costs of funds may prove restrictive. This tradeoff of managing inflation, and spurring investment, is simply a microcosm of the difficulties managing the many facets of our modern, global economy.

About the Author
Ron Lenz is the partner-in-charge of Katz, Sapper & Miller’s Construction Services Group. Ron's particular areas of expertise include accounting and auditing matters, tax planning and business structuring, mergers and acquisitions, and succession planning. Connect with him on LinkedIn.

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