On January 16, 2024, the House Ways and Means Committee and Senate Finance Committee announced the Tax Relief for American Families and Workers Act of 2024. This bipartisan deal was proposed in an effort to improve the U.S. economic competitiveness, spur business innovation, and promote financial security for working families. While the bill is not yet final and still faces a series of votes in both the House and the Senate, the legislation is gaining steam with an added urgency to ensure its passage prior to the upcoming 2023 tax filing season.
The key changes in the proposed framework are detailed below (click here for a technical summary of the provisions), and we will provide updates as the legislation moves through the approval process.
Section 174 Expensing – The proposed tax legislation would restore Section 174 expensing on U.S.-based research & development (R&D) investments. The framework would allow taxpayers to immediately deduct research & experimental (R&E) costs incurred in tax years beginning after December 31, 2021, and before January 1, 2026. The ability to delay the Section 174 capitalization requirements (amortized over a 5-year period) would only be applicable to domestic R&E activities. R&E activities conducted outside of the United States would continue to be amortized over a 15-year period.
Section 163j Interest Deductibility – The proposed framework would extend the application of business interest deductions without regard to any deduction allowable for depreciation, amortization, or depletion (i.e., earnings before interest, taxes, depreciation and amortization (EBITDA)) to tax years beginning after December 31, 2023 (and, if elected, for tax years beginning after December 31, 2021), and before January 1, 2026. The ability to deduct business interest expense would remain unchanged and limited to 30% of adjusted taxable income (ATI), however, the proposed legislation would calculate a Taxpayer’s ATI before applicable depreciation and amortization deductions.
Extension of Section 168(k) 100% Bonus Depreciation – Under the Tax Cuts and Jobs Act of 2017 (TCJA), qualified property was eligible for 100% bonus depreciation treatment. Starting in tax years after December 31, 2022, bonus depreciation was scheduled to phase down to 80% for qualified property placed into service. Bonus depreciation reductions would ensue each following year by 20% until being fully phased out starting in tax years after December 31, 2026. The proposed legislation would aim to extend 100% bonus depreciation for qualified property placed into service after December 31, 2022, and before January 1, 2026. For property placed into service after December 31, 2025, and before January 1, 2027, the bonus depreciation would remain at the scheduled 20% deduction.
Additional highlights – the proposed Act also includes provisions that expand access to the child tax credit through 2025; bar eligible Employee Retention Credit (ERC) claims after January 31, 2024; provide a temporary increase to Section 179 small business expensing; and expand the low-income housing credit and financing provisions.
The tax professionals at Grossman Yanak & Ford LLP will continue to monitor the details of these and future tax legislative changes in the coming weeks and months. If you need assistance with your individual or corporate tax needs, please reach out to your GYF Executive or contact our office at 412-338-9300.
