The Tax Relief for American Families and Workers Act of 2024 Proposes Significant Tax Benefits for American Taxpayers
On January 31, 2024, the U.S. House of Representatives passed the Tax Relief for American Families and Workers Act of 2024 (the “Act”). See H.R. 7024, 118th Cong. (2024). Subject to approval by the U.S. Senate, the Act would provide several significant benefits to business taxpayers, including:
(1) Extension of 100 Percent Bonus Depreciation for Qualified Property.
The Act would extend the 100 percent bonus depreciation for qualified property placed in service through 2025. This would replace the current phasedown of 80 percent in 2023, 60 percent in 2024, and 40 percent in 2025. The 20 percent bonus depreciation for qualified property that commenced in 2026 would remain.
Qualified property includes, among others, Water Utility Property[1] or certain property with a recovery period of 20 years or less, which includes “initial clearing and grading land improvements with respect to any electric utility transmission and distribution plant,”[2] that the taxpayer places in service before January 1, 2027. Any such qualified property’s original use, or used property that meets certain acquisition requirements, must have commenced with the taxpayer.[3]
(2) Increase Depreciable Business Assets Deduction.
The Act would also increase the maximum deduction amounts for qualified depreciable business assets under IRC Section 179 to $1.29 million (from $1.16 million) and increase the phase-out threshold to $3.22 million (from $2.89 million) for the 2023 tax year. These amounts would adjust for inflation in subsequent years.
(3) Increase in the Business Interest Expense Limitation.
The Act proposes to retroactively permit taxpayers to calculate adjusted taxable income for purposes of Section 163(j), using an EBITDA computation for tax years beginning before January 1, 2026.
This would result in a higher limitation on deductible business interest expense compared to the EBIT computation the IRS currently requires for post‑2021 tax years.
(4) Immediate Deduction for Domestic Research & Development (“R&D”).
The Act proposes to reinstate and retroactively apply the ability to immediately deduct the cost of domestic R&D expenses in tax years 2022 through 2025. Taxpayers would still deduct R&D expenses outside the U.S. over a 15-year period.
Under current law, domestic R&D expenses must amortize over a 5-year period beginning with the 2022 tax year.
(5) Increase Minimum Threshold for 1099-MISC and 1099-NEC Reporting.
The Act would increase the reporting thresholds for IRS Forms 1099-MISC and 1099-NEC from $600 to $1,000. This would apply to payments after December 31, 2023.
Lastly, the legislation introduces new enforcement protocols for the Employee Retention Tax Credit (“ERTC”). It would establish a January 31, 2024 deadline for filing ERTC claims related to tax years 2020 and 2021, increase penalties for abusive or fraudulent claims and extend the five-year statute of limitations to six years.
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The Act now goes before the U.S. Senate, so there may be more changes to come. Baird Holm LLP attorneys will continue to monitor developments to the Act. Taxpayers should consider potential amendments to their annual tax return as the retroactive provisions of the Act may apply.
Attorneys at Baird Holm LLP specialize in business tax law and real estate law. Please do not hesitate to contact us if you have any questions on this or any related matter.
[1] 26 U.S.C. § 168(e)(5) defines “Water Utility Property” as “property which is an integral part of the gathering, treatment, or commercial distribution of water, and which, without regard to this paragraph, would be 20-year property” or “any municipal sewer”
[2] See 26 U.S.C. § 168(e)(3)(F).
[3] See 26 U.S.C. § 168(k)(2)(A)(i)-(iii).