New Tax Bill Includes 100% Bonus Depreciation

Update, Jan. 31: The House passed the Tax Relief for American Families and Workers Act Wednesday evening. The bill now heads to the Senate.

New bipartisan legislation, the Tax Relief for American Families and Workers Act of 2024, includes 100% bonus depreciation as well as research and development expensing and also expands the Child Tax Credit.

The bill, agreed to by Senate Finance Committee Chairman Ron Wyden, D-Ore., and House Ways and Means Committee Chairman Jason Smith, R-Mo., also expands the small-business expensing cap, increasing the amount of investment that a small business can immediately write off to $1.29 million from the $1 million cap enacted in 2017.

The legislation, according to Erica York, senior economist and research manager at the Tax Foundation in Washington, "is more akin to a year-end tax extenders bill (though we have now started a new year!)"

While the act overlaps with some of the proposals that were in the Ways and Means package introduced in June, "such as expired business deductions, it has many differences," York explained to ThinkAdvisor in an email Tuesday.

The Wyden-Smith agreement "would restore three major business provisions (100% bonus depreciation, R&D expensing for domestic R&D only, and a looser limitation on business interest deductions) through 2025," York said.

It would also "make new changes to the Child Tax Credit that would increase the amount that can be received as a refund and inflation adjust the maximum among other changes to the credit that would all last through 2025."

The bill increases the maximum refundable amount per child to $1,800 in tax year 2023, $1,900 in tax year 2024 and $2,000 in tax year 2025. The $2,000 value of the child tax credit would be adjusted for inflation in tax years 2024 and 2025, rounded down to the nearest $100.

Those four provisions, York continued, "are the major features of the agreement, but the agreement includes other provisions for low-income housing, disaster relief, Section 179 expensing, U.S.-Taiwan provisions, and increases in certain reporting thresholds."

Another new component "is that the agreement would offset the cost of the temporary tax cuts by making changes to the Employee Retention Tax Credit," York explained.

"Ideally, lawmakers would be debating how to permanently stabilize the tax code, rather than working to enact last-minute, temporary, and retroactive tax changes in the weeks before the filing season kicks off," York opined.

Important for Advisors

Jeff Bush of The Washington Update explained in another email to ThinkAdvisor on Tuesday that the 100% bonus depreciation is "important to advisors as many of their clients are business owners. This is a big deal for small and medium-sized businesses."

Bush noted that as he's "traveled and spoken to groups, many of which are business owners, I sense they are maxing out their growth potential with the facilities, equipment, etc., they have now. They are eager to invest, and these changes to the tax code can be the final straw in getting them to reinvest in their companies."

On the business tax side, the bill "would allow immediate expensing for U.S.-based R&D and 100% expensing for capital purchases," Bush explained. "Also included is interest deductibility. These are expired tax changes written into the Tax Cuts and Jobs Act of 2017, and their restoration is a high priority for Republicans."

Added Bush: "These business tax changes, the Fed lowering rates, and growing corporate profits bode well for economic growth in 2024 and beyond."

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