In the next few weeks, lawmakers and the Obama administration will be wrestling with decisions on the fate of 55 or so highly obscure but often extraordinarily costly tax breaks that lapsed at the end of 2014 and must be reauthorized retroactively for the 2015 tax year.
None of the measures are part of the permanent federal tax code and therefore must be renewed every year or two. For that reason, they are called tax “extenders,” although they could be viewed more colorfully and perhaps more accurately as generous gifts in wrapping paper under the Christmas tree. Here are five of the most outrageous tax extenders on the agenda this year:
1. A break for NASCAR track owners. Owners of NASCAR tracks and other “motorsports entertainment complexes” may write off the cost of facilities on their taxes over seven years, instead of the standard 39 years for nonresidential property and 15 years for “improvements,” such as roads. This is provided the venue hosts an event within three years of its completion. Estimated cost in FY 2015: $11 million.
2. Extension of some racehorses’ classification as 3-year property. The 2008 farm bill temporarily cut the cost recovery period from seven years to three years for racehorses that begin training when they’re older than two. This provision extends this recovery period to all racehorses despite a U.S. Treasury study that determined racehorses have an economic life of nine years when including post-career breeding and resale value. Estimated cost in FY 2015: $74 million.
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3. Breaks for film and TV productions. The law allows filmmakers the option of deducting significant costs for most productions. Producers can elect to expense the first $15 million of costs incurred in the current year, which can be claimed if at least 75 percent of the costs are for services performed in the U.S. Estimated cost in FY 2015: $245 million.
4. Research and development tax credit. This tax credit, which has an extraordinarily broad definition of “research,” generally goes to larger corporations. Some critics say that the tax credit rewards companies for doing work they would have done anyway. Companies that have benefited in the past include Microsoft, Boeing, United Technologies, Electronic Data Systems and Harley-Davidson. Estimated cost in FY 2015: $3.786 billion.
5. Rum excise tax revenues in Puerto Rico and the Virgin Islands. The history of this break is byzantine and confusing, but basically Congress will extend a provision increasing an excise tax rebate of $13.25 per proof gallon of rum distilled in Puerto Rico and the U.S. Virgin Islands. The provision’s main beneficiaries? The liquor companies Diageo and Bacardi. Estimated cost in FY 2015: $168 million.
Source: Taxpayers for Common Sense
