This is a short recap of the provisions agreed to by U.S. Senate Finance Committee Chair Ron Wyden (D-Oregon) and House Ways and Means Committee Chair Jason Smith (R-Missouri) regarding the Tax Relief for American Families and Workers Act of 2024.

While this agreement marks a significant step in the legislative process and highlights the cooperation of both parties for the benefit of the American people, there is a long road ahead for this agreement to be enacted.

Key Note: Many of these provisions are only in place through 12/31/25.

Summary of Key Provisions:

Child Tax Credit
Increased from $1,600 to $1,800 in 2023, $1,900 in 2024, and $2,000 in 2025.

American Innovation and Growth

R&D expenditures
Delays the requirement to capitalize R&D expenses and amortize them over a 5-year period to tax years after 12/31/25. The provision includes the ability to expense R&D expenditures for the 2022 tax year. If enacted, one way the IRS could allow this retroactive change to occur would be to allow superseded tax returns to be filed for the 2022 tax year.

Observation: The change is temporary (for the moment) while Congress identifies ways to balance spending against revenue. As we have seen in the past with the R&D tax credit (temporary for many years), this could be the first of several extensions for this treatment.

Bonus Depreciation Extension
Extends 100 percent bonus depreciation for qualified property placed in service after 12/31/22 and before 1/1/26. The plan also includes bonus depreciation of 20 percent for the tax year 2026.

Increased Limitation on Expensing of Depreciable Business Assets
Increases the amount that a taxpayer may elect to expense to $1.29 million, reduced by which the cost of qualifying property exceeds $3.22 million for 2023. These amounts are adjusted beginning after 2024. Currently, qualifying property can be expensed up to $1.13 million in 2023 (after indexing for inflation).

Observation: The ability to expense qualified property under Section 179 has been in place for a number of years. This change provides an additional incentive for increased investment that should continue to stimulate the real estate industry. That said, the extension of bonus depreciation largely manages the ability to expense qualified property at 100 percent, making this change less impactful.

Business Interest Limitation
Extends the application of earnings before interest, taxes, depreciation and amortization (EBITDA) to the computation of Adjusted Taxable Income (ATI) tax years 2024 and 2025 for computing the limitation in business interest. For tax years 2022 and 2023, the limitation is computed with regard to depreciation, amortization or depletion (EBIT). However, under this provision, ATI may be computed as EBITDA if elected for the computation of interest limitations.

Observation: Including depreciation, amortization or depletion in the calculation reduces ATI. This, in turn, lowers the limit by which business interest may be limited. This change provides additional potential deductions that may otherwise be limited.

Acena Consulting will continue to monitor these changes as they happen. As noted above, this is a significant hurdle that has been overcome. There are still several steps in the process and additional challenges to be overcome in the next few weeks as the appropriations legislation makes its way through the legislative process.

About the Author

Dan Osterland is a Senior Manager-Business Development for Acena Consulting, LLC. He can be reached at 248-379-4188 or dan.osterland@acenaconsulting.com.

Acena Consulting is an MMA Premium Associate Member and has been an MMA member company since May 2023. Visit online: acenaconsulting.com.