Inside AGC — March/April 2006

Financial Advocacy: What You Need To Know About Tax Legislation

Several new deductions can help contractors at tax time

AGC tirelessly promotes the construction industry on Capitol Hill, advocating tax policies that promote industry growth, including urging Congress to make the tax cuts permanent and repeal the death tax. During this tax season, AGC reminds its members of some new and useful tax provisions that could benefit them.

Small Business Expensing

Did your small construction business purchase less than $400,000 of new equipment in a taxable year? Under the Small Business Expensing Provision (Section 179), designed to encourage small businesses to purchase new equipment, your business may be able to expense up to $100,000 if your company purchased new construction equipment.

Construction Tax Deduction

Are you taking advantage of the construction tax deduction? Section 199 of the tax code was created in 2004 and offers contractors a 3% deduction on all building costs for all projects completed in the United States. The deduction will increase to 6% in 2007 and 10% in 2009 and beyond.

State Sales Tax Deduction

If your state does not have a state income tax, you can take advantage of the federal deduction for state sales tax, which allows contractors to deduct state sales taxes from their returns.

Gulf Opportunity Zone Incentives

While AGC continues to fight for taxpayer benefits and protections nationwide, construction companies and businesses in the Gulf Coast have been given special benefits to help support investment and rebuilding incentives. It is known as the Gulf Opportunity Zone (GO Zone) and includes:

> The 50% bonus depreciation provides an incentive for all construction businesses in the GO Zone to replace equipment lost in the storms by purchasing new equipment. The provision permits businesses to deduct 50% of the cost of new equipment.

> Contractors located within the GO Zone who spend up to $1 million on new equipment can take advantage of the Enhanced Section 179 Expensing. It allows construction companies to expense up to $200,000 on that new equipment.

> A new provision allows owners to expense 50% of the construction costs to encourage renovation and reconstruction in the GO Zone.

> All construction businesses in the GO Zone will now be able to carry their net operating losses back for five years against past years' gains in the net operating loss carryback provision. An additional rule permits Katrina-related casualty losses associated with public utility property in the GO Zone to be carried back 10 years.

> The rehabilitation tax credit offers qualified commercial building owners an increased incentive to rebuild in the GO Zone by raising the available tax credit for rebuilding from 10 to 13%, increasing opportunities for contractors, to be a part of the rebuilding process.