Recent Changes in Tax Legislation Could Save You or Cost You Beginning in 2018

The recently enacted Tax Cuts and Jobs Act (TCJA) is a sweeping tax package. Everyone in business — including roofers — should have at least a passing knowledge of what to expect beginning in tax year 2018. Most of the changes are effective for tax years beginning in 2018 and lasting through 2025.

Tax rates — personal and corporate. The new law imposes a new tax rate structure with seven tax brackets: 10 percent, 12 percent, 22 percent, 24 percent, 32 percent, 35 percent, and 37 percent. The top rate was reduced from 39.6 percent to 37 percent and applies to taxable income above $500,000 for single taxpayers and $600,000 for married couples filing jointly.

The corporate income tax rate used to be graduated with a maximum cap at 35 percent. It was reduced to a flat 21 percent. The corporate tax rate reduction puts the United States in line with most of the rest of other developed nations. The reduction is designed to increase spending, increase jobs, increase employee salaries, foster corporate improvements, and continue to incentivize the overall economy.

Standard deduction. The new law increases the standard deduction to $24,000 for joint filers, $18,000 for heads of household, and $12,000 for singles and married taxpayers filing separately. Given these increases, many taxpayers will no longer be itemizing deductions. These figures will be indexed for inflation after 2018.

Exemptions. The new law suspends the deduction for personal exemptions. Thus, starting in 2018, taxpayers can no longer claim personal or dependency exemptions. The rules for withholding income tax on wages will be adjusted to reflect this change, but IRS was given the discretion to leave the withholding unchanged for 2018.

New deduction for “qualified business income.” Starting in 2018, taxpayers are allowed a deduction equal to 20 percent of “qualified business income,” otherwise known as “pass-through” income, i.e., income from partnerships, S corporations, LLCs, and sole proprietorships. The income must be from a trade or business within the United States. Investment income does not qualify, nor do amounts received from an S corporation as reasonable compensation or from a partnership as a guaranteed payment for “services” provided to the trade or business. In other words, lawyers are out of luck! The deduction is not used in computing adjusted gross income, just taxable income. For taxpayers with taxable income above $157,500 ($315,000 for joint filers), (1) a limitation based on W-2 wages paid by the business and depreciable tangible property used in the business is phased in; and (2) income from the following trades or businesses is phased out of qualified business income: health, law, consulting, athletics, financial or brokerage services, or where the principal asset is the reputation or skill of one or more employees or owners.

Child and family tax credit. The new law increases the credit for qualifying children (i.e., children under 17) to $2,000 from $1,000, and increases to $1,400 the refundable portion of the credit. It also introduces a new (nonrefundable) $500 credit for a taxpayer’s dependents who are not qualifying children. The adjusted gross income level at which the credits begin to be phased out has been increased to $200,000 or $400,000 for joint filers.

State and local property taxes. The itemized deduction for state and local income and property taxes is limited to a total of $10,000.00 starting in 2018.

Mortgage interest. Under the new law, mortgage interest on loans used to acquire a principal residence and a second home is only deductible on debt up to $750,000, starting with loans taken out in 2018. This sum is down from $1 million. There is no longer any deduction for interest on home equity loans, regardless of when the debt was incurred.

Miscellaneous itemized deductions. There is no longer a deduction for miscellaneous itemized deductions which were formerly deductible to the extent they exceeded 2 percent of adjusted gross income. This category included items such as tax preparation costs, investment expenses, union dues, and unreimbursed employee expenses.

Medical expenses. Under the new law, for 2017 and 2018, medical expenses are deductible to the extent they exceed 7.5 percent of adjusted gross income for all taxpayers. Previously, the adjusted gross income floor was 10 percent for most taxpayers.

Casualty and theft losses. The itemized deduction for casualty and theft losses has been suspended except for losses incurred in a federally declared disaster.

Overall limitation on itemized deductions. The new law suspends the overall limitation on itemized deductions that formerly applied to taxpayers whose adjusted gross income exceeded specified thresholds.

Moving expenses. The deduction for job-related moving expenses has been eliminated, except for certain military personnel. The exclusion for moving expense reimbursements has also been suspended.

Health care “individual mandate.” Starting in 2019, there is no longer a penalty for individuals who fail to obtain minimum essential health coverage.

Estate and gift tax exemption. Effective for decedents dying, and gifts made, in 2018, the estate and gift tax exemption has been increased to roughly $11.2 million ($22.4 million for married couples).

A lot of the details of the simple descriptions listed above remain to be completely formalized, and some of it may still change. Stay aware of the tax revisions and consult with an attorney in your locale if you have any questions.

NRCA Voices Regulatory Accountability Act Support

The National Roofing Contractors Association (NRCA) has voiced its support for the Regulatory Accountability Act in a letter sent to Speaker of the House Paul Ryan. NRCA joins 380 associations and chambers of commerce from throughout the U.S. in urging Ryan to make consideration of the legislation an early priority for the 115th Congress. 
 
Associations joining NRCA in signing the letter come from 47 states and the District of Columbia and represent a multitude of sectors including agriculture, energy, transportation and manufacturing.
 
“We believe federal regulations should be narrowly tailored, supported by strong and credible data and evidence, and impose the least burden possible, while still implementing Congressional intent,” the groups wrote in the letter to Ryan. “The Regulatory Accountability Act builds on established principles of fair regulatory process and review that have been embodied in bipartisan executive orders dating to at least the Clinton administration.”
 
“Our members, nearly all of whom are family-owned businesses, tell us they simply can’t cope with the layers of regulations they must contend with,” says William Good, CEO of NRCA.  “Too often, regulations are not based on good science and are difficult to understand.”
 
The Regulatory Accountability Act would reduce the burden of regulations on employers and economic growth by requiring agencies to invest more effort earlier in the rulemaking process to gather data, evaluate alternatives, and receive public input about the costs and benefits of its rules.

National Roofing Contractors Association CEO Releases 2016 Elections Statement

William Good, CEO, National Roofing Contractors Association, has released a statement about the 2016 elections.

We are pleased a majority of candidates supported by the National Roofing Contractors Association (NRCA) and ROOFPAC, our political action committee, prevailed in the 2016 elections. We congratulate President-elect Donald Trump and all winning candidates on their victories and look forward to working with the incoming Trump administration and new and returning lawmakers to advance NRCA’s policy agenda. This includes pro-growth tax policies, relief from some regulations, legislation that addresses the workforce needs of our industry, and replacement of the Affordable Care Act with market-based reforms to our health care system.

ROOFPAC, the voice of the roofing industry in Washington, D.C., actively supported pro-growth candidates in the elections. ROOFPAC invested more than $340,000 in support of 67 candidates during the 2015-16 election cycle and achieved a winning percentage of nearly 90 percent of candidates supported.

NRCA and ROOFPAC will continue to support members of Congress and other candidates who support government policies that enable roofing industry entrepreneurs to start and grow businesses.

AIA Comments on the Passing of the Energy Policy Modernization Act

The American Institute of Architects (AIA) issued the following statement after the U.S. Senate passed S. 2012, the Energy Policy Modernization Act. The legislation repeals targets for reducing fossil fuel consumption in federal buildings contained in Section 433 of the Energy Independence and Security Act of 2007, which was passed by Congress and signed into law by then-President George W. Bush.

AIA President Russell Davidson, FAIA, says: “Cutting fossil fuel consumption in new and renovated federal buildings by 2030 is clearly something we can achieve as a nation. My fellow architects are already designing buildings that are “net zero” consumers of energy. According to government statistics, better designed buildings have already saved our country approximately $560 billion in energy costs since 2005.

“Therefore it makes no public policy sense for Congress to cave in to the oil and gas lobby and kill requirements to reduce fossil-fuel consumption in federal buildings. As we have noted before, residential and commercial buildings account for almost 40 percent of both total U.S. energy consumption and carbon dioxide (CO2) emissions. Last December, nearly 200 nations, including the U.S., committed in Paris to reducing the planet’s carbon footprint.

“Uncle Sam must continue to be a leader worldwide in energy conservation and reduced dependence on the use of fossil fuels. Yet we are effectively abrogating this role with this short-sighted vote, which will continue to hold federal taxpayers hostage to the whims of global energy markets.

“We were gratified by the White House’s announcement in December that the President would veto the House energy legislation, specifically citing the repeal of Section 433 as one of several major objections. We hope that lawmakers come to their senses and strip this provision from any final bill.”

Sen. Cardin Reintroduces Bill to Increase Employment and Improve the Energy-Efficiency of Commercial Building Roofs

U.S. Sen. Ben Cardin (D-Md.), has reintroduced the “Energy-Efficient Cool Roofs Jobs Act,” S. 2388, which would boost job creation in the construction industry and significantly increase the energy efficiency of buildings throughout the U.S., lowering energy costs and saving money. The bill would improve investment returns on building energy-efficiency improvements by shortening the tax depreciation period for the installation of new roofs on existing buildings that meet certain thermal performance and “cool roof” requirements.

“We don’t need to choose between good jobs and helping the environment; we can do both with the same policy,” said Senator Cardin. “Cool Roofs provides an opportunity to reduce energy consumption and add nearly 40,000 jobs to a sector of our economy that still has not felt the full effect of our emergent recovery. It’s no wonder this bill, which provides incentives to install energy efficient roofs and simplifies the tax code, has such broad support across industries and labor.”

S. 2388 is co-sponsored by Sens. Mike Crapo (R-Idaho) and Dean Heller (R-Nev.). Sen. Cardin also filed the Energy-Efficient Cool Roofs Jobs Act as an amendment (S. Admt 3186) to the EXPIRE Act (S. 2260). U.S. Reps. Tom Reed (R-NY) and Bill Pascrell (D-NJ) have introduced a companion bill in the House (H.R. 4740).

The bill reduces the depreciation period for commercial roof retrofits, lowering the current 39-year depreciation period in the current tax code to a 20-year depreciation period for energy-efficient cool roof systems. To qualify, roofs must include systems with insulation that meets or exceeds the ASHRAE Standard 189.1-2011, a model green building standard, and have a cool roof surface in climate zones one through five.

“Congress recognizes the value of commercial building roofs in terms of both national energy policy and providing an incentive for owners to increase the thermal performance of their buildings,” said Jared O. Blum, president, Polyisocyanurate Insulation Manufacturers Association (PIMA), a supporter of the bill. “Most buildings in this country were built before modern energy codes were in place, so upgrading the performance of those buildings with more energy efficient roofs can save lots of money.

“The legislation also offers a more fair treatment of roofs under the tax depreciation system. As currently structured, the tax code has created a disincentive for building owners to upgrade their roofs,” added Blum.

The Energy-Efficient Cool Roofs Jobs Act has attracted a wide range of supporters, including PIMA. The bill would create nearly 40,000 new jobs among roofing contractors and manufacturers; add $1 billion of taxable annual revenue in the construction sector; make the tax code simpler and more equitable for small businesses of all types; reduce U.S. energy consumption and save small businesses millions of dollars in energy costs; and reduce carbon emissions by 800,000 metric tons—an amount equal to the emissions of 153,000 cars. Additional supporters include:

Alliance to Save Energy
American Council for an Energy-Efficient Economy
Asphalt Roofing Manufacturers Association
Associated Builders and Contractors
Building Owners and Managers Association
Center for Environmental Innovation in Roofing
Environmental and Energy Study Institute
Global Cool Cities Alliance
Institute for Market Transformation
Joint Roofing Industry Labor and Management Committee
National Roofing Contractors Association
NAIOP: The Commercial Real Estate Development Association
Spray Polyurethane Foam Alliance
United Union of Roofers, Waterproofers and Allied Workers

A significant opportunity to increase building energy efficiency lies within the commercial roofing sector. Waterproof membranes on commercial low-slope roofs (i.e., flat roofs) last, on average, 17 years. When these membranes are replaced, building owners could add a reasonable amount of insulation and substitute a white roof surface (i.e., a cool or reflective roof) for the traditional dark colored roof surface, a practice that would save $12.2 billion in energy costs in just the first ten years. The annual savings after ten years would be $2.4 billion. This activity would also avoid and offset 147 million tons of CO2 emissions, an amount that is equal to the annual emissions of 38 coal fired power plants.

NRCA Supports Commercial Roof Depreciation Legislation

The National Roofing Contractors Association (NRCA) strongly supports bipartisan legislation introduced in Congress on May 22 to reform the outdated depreciation schedule for commercial roofs. This legislation, which replaces the current 39-year depreciation schedule with a 20-year schedule, will remove an obstacle in the tax code that limits economic growth in the roofing industry, thus facilitating the creation of an estimated 40,000 new jobs among roofing contractors and manufacturers. It also will benefit millions of small businesses nationwide and advance energy efficiency within the commercial building sector.

NRCA wishes to commend Reps. Tom Reed (R-N.Y.) and Bill Pascrell (D-N.J.) for sponsoring the House bill (H.R. 4740) and Sens. Ben Cardin (D-Md.) and Mike Crapo (R-Idaho) for authoring the companion legislation (S. 2388) in the Senate. NRCA looks forward to working with these and other lawmakers to enact this legislation as the congressional tax-writing committees consider possible changes in tax policy that will help grow the economy and create jobs.

There has been a need for depreciation reform since the depreciation schedule for nonresidential property was increased from 15 to 39 years between 1981 and 1993. The average life span of most commercial roofs is only 17 years, according to a study by Ducker Worldwide. This has caused building owners to delay the full replacement of older, failing roofs in favor of limited, piecemeal repairs. Moreover, building owners who install new roofs before the current 39-year schedule has elapsed are required to depreciate roofs at different schedules, causing paperwork burdens for businesses.

This legislation will rectify this problem by providing the 20-year depreciation schedule for commercial roof retrofits that meet a benchmark energy-efficiency standard. Depreciation reform for energy-efficient commercial roofs will provide significant energy, environmental and economic benefits by reducing energy costs for businesses of all types that install new roofs.

Depreciation reform for commercial roofs enjoys the support of numerous business, labor and energy efficiency groups, including the National Roofing Contractors Association; United Union of Roofers, Waterproofers and Allied Workers; and the Polyisocyanurate Insulation Manufacturers Association. For more information, please contact NRCA’s vice president of government relations Duane Musser, or manager of federal affairs Andrew Felz at (202) 546-7584.