A key tax deduction used by farmers and small businesses would be expanded under the tax plan unveiled by House Republicans Monday, while the 45Z tax credit for biofuels would be extended to 2031 and eased in ways that would benefit domestic ag feedstocks.
The House Ways and Means Committee will meet Tuesday to markup its portion of the budget reconciliation bill. The panel is tasked with extending provisions of the 2017 Tax Cuts and Jobs Act, along with several other tax priorities designated by President Donald Trump.
The draft text released Monday would increase the Section 199A deduction for business income from 20% to 23%, and the estate tax exemption would be increased to $15 million per person.
An initial draft of the bill released over the weekend would have raised the Section 199A deduction to 22%. The deduction was intended to keep small business tax rates in line with corporate rates.
The bill also provides some wins to the biofuel and farm country coalition. Under the draft, the 45Z tax credit for clean fuel producers would be extended through 2031. The credit was included in the Inflation Reduction Act and was only set to last for three years, or through 2027.
The industry had warned that a three-year window was not enough to provide the necessary certainty to spur investments.
Additionally, the Ways and Means draft bill includes some adjustments to the credit that some in the industry have long pushed for. If passed, the credit would only apply to fuel if the feedstock was produced in the United States, Canada or Mexico.
The recent rise in used cooking oil and tallow imports from China has caused some concern for soybean producers and processors, who argued that low carbon fuel standards favor the foreign imports over domestically grown feedstocks.
The bill also excludes any emissions associated with indirect land use change (ILUC) from being used in calculating eligibility for the credit. It also directs the Treasury Department to create distinct emission rates for different types of animal manure.
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Finally, the draft repeals the transferability of the clean fuel tax credit beyond 2027, along with several other credits. This practice allows fuel companies that qualify for the credit to transfer or sell it to a third party.
"Transferability of the credit is essential to many Clean Fuels members – especially smaller producers who aren’t able to claim the full income credit value,” said Paul Winters, spokesperson for Clean Fuels Alliance, in a statement. “The limit on transferability beyond 2027 could make the credit extension less valuable to small producers.”
Not all IRA credits fared as well. The Ways and Means draft bill seeks to terminate or phase out several credits. The Clean Hydrogen Production Credit, or 45V would be terminated January 1, 2026, while the 48E credit for clean electricity investment would be phased out with restrictions on foreign entities.
Members of the House Freedom Caucus have argued that all IRA credits should be repealed under the reconciliation plan.
Before the full Ways and Means draft bill was released, Rep. Chip Roy, R-Texas, criticized the reconciliation bill in a social media post for phasing out IRA credits rather than immediately terminating them.
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