Earlier today, President Obama signed the Military Construction and Veterans Affairs and Related Agencies Appropriations Act, 2016 (the Act)—which includes the Consolidated Appropriations Act of 2016 and the Protecting Americans from Tax Hikes Act of 2015—into law, following its passage through Congress. Among other things, the Act will make a range of various tax benefits permanent and retroactively extend many others.

Notably, the Act includes the extension of numerous energy tax provisions. It will revise the Section 45 production tax credit (PTC) such that qualifying wind facilities for which construction has begun prior to January 1, 2017, will be eligible for the current rate of PTC (2.3 cents per kilowatt, adjusted for inflation). A reduced PTC will be available for qualifying wind facilities for which construction has begun prior to January 1, 2020—the PTC is reduced by 20 percent for projects for which construction begins in 2017, 40 percent for projects for which construction begins in 2018, and 60 percent for projects for which construction begins in 2019. Qualifying wind facilities will be entitled to elect the Section 48 investment tax credit (ITC) in lieu of the PTC if construction begins prior to January 1, 2020 (subject to a reduced amount for facilities for which construction begins in 2017, 2018, or 2019).

The Act also provides that qualifying facilities (other than wind facilities) will be eligible for the current rate of PTC (2.3 cents per kilowatt, adjusted for inflation), provided that construction begins prior to January 1, 2017.

In addition, the Section 48 ITC is revised such that it will not reduce to 10 percent after December 31, 2016 (as originally scheduled); instead, the ITC will remain at 30 percent for qualifying projects for which construction begins prior to January 1, 2020. The ITC will be reduced to 26 percent for projects for which construction begins in 2020, 22 percent for projects for which construction begins in 2021, and 10 percent for projects for which construction begins after December 31, 2021. Unless the project is placed in service prior to January 1, 2024, any project for which construction begins before January 1, 2022, will be entitled to a 10 percent ITC. The Section 25D credit for residential solar systems will also be extended for systems placed in service prior to January 1, 2022, subject to the same reduced credit schedule as the ITC.

Other tax benefits that are made permanent by the Act include:

• Section 41 Research and Development Tax Credit
• Section 42 Extension of Minimum Low Income Housing Tax Credit Rate for Non-Federally Subsidized Buildings
• Section 897 Extension of Regulated Investment Company Qualified Investment Entity Treatment Under FIRPTA
• Section 953 Exception from Subpart F Income for Active Financing Income
• Section 1202 Exclusion of 100 Percent of Gain on Certain Small Business Stock
• Section 1374 Reduction in S-Corporation Recognition Period for Built in Gains

The Act also provides for extension of Section 168(k) Bonus Depreciation for Property Acquired and Placed in Service during 2015 through 2019. Bonus depreciation is reduced from 50 percent to 40 percent for property placed in service in 2018 and reduced from 40 percent to 30 percent for property placed in service in 2019. Certain long-lived and transportation property will be eligible for an additional year of bonus depreciation if placed in service prior to January 1, 2021.

Other provisions that are extended by the Act include:

• Section 25C Credit for Nonbusiness Energy Property (extended through December 31, 2016)
• Section 40 Second Generation Biofuel Producer Credit (extended through December 31, 2016)
• Section 40A Biodiesel and Renewable Diesel Incentives (extended through December 31, 2016)
• Section 45D New Markets Tax Credit (extended through December 31, 2019)
• Section 179D Energy Efficient Commercial Buildings Deduction (extended through December 31, 2016)
• Section 954 Look-Through Treatment for Payments between Related Controlled Foreign Corporations (extended through December 31, 2019)

Additional clarifications were also made to recently enacted partnership audit legislation under Chapter 63 of the Internal Revenue Code. In particular, the Act clarifies the rules providing partners with the ability to modify imputed underpayment determinations based on applicable highest income tax rates and passive losses of publicly traded partnerships, and makes various technical corrections.

In addition, the Act includes, among other changes, extension and modification of individual tax relief provisions, extension and modification of charitable giving provisions, modification of rules relating to real estate investment trusts, and modification of tax administration rules.