2024 Bonus Depreciation Bill: Tax Relief Insight

There’s a new bonus depreciation bill in town….and here’s the lowdown:

The “Tax Relief for American Families and Workers Act of 2024,” also known as HR 7024, was passed by the U.S. House of Representatives on January 31, 2024, with an overwhelming majority vote of 357-70.

This legislation seeks to enhance tax benefits for both American families and businesses.

For real estate investors, key points of interest include the immediate expensing of domestic research expenses instead of the current five-year spread. This provision applies retroactively from 2022 and extends through 2025. However, research costs incurred abroad will still need to be amortized over 15 years.

Additionally, the bill sustains the 100% bonus depreciation for purchases made between January 1, 2023, and December 31, 2025, modifies the immediate expense deduction limit (Section 179) for inflation, and maintains the business interest expense deduction limit at 30% of EBITDA for 2024 and 2025.

It also raises the refundable Child Tax Credit for 2023 to 2025.

This bill presents significant tax-saving opportunities and incentives for real estate investors, potentially impacting investment strategies and financial outcomes.

If you’ve invested in eligible business assets since late 2017 (like myself) or plan to in the near future, understanding the nuances of this tax bill could offer you considerable fiscal advantages.

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Overview of Bonus Depreciation Bill

Key Provisions

100% Bonus Depreciation

The proposed bill reinstates full depreciation for qualifying business assets.

Extension of Timeframe

Under the new bill, the period to take advantage of this incentive extends through a specified future year.

Bipartisan Support

This legislation has received backing from both major political parties, indicating a unified effort to support economic growth.

Goals

Stimulating Investment

Allowing businesses to deduct the full cost of eligible assets aims to encourage more immediate investments.

Economic Growth

The overarching aspiration is to create a ripple effect that fosters job creation and overall economic expansion.

Historical Background

Current Law

The Tax Cuts and Jobs Act set the stage for bonus depreciation, but it was scheduled to phase out, starting with a reduction to 80% in 2023.

Proposed Bill

The U.S. House of Representatives proposed maintaining the bonus depreciation rate at 100%, delaying the phaseout and offering businesses a valuable tax incentive to invest in their growth.

Impact on Taxpayers

The passage of the Tax Relief for American Families and Workers Act has introduced key changes affecting your taxable income and the way you will file tax returns, especially if you are involved with small businesses or you are part of a lower-income family. 

Taxpayer Group	Effects of the Tax Relief Act
Small Businesses	Provision for 100% bonus depreciation allowing immediate expensing of assets, affecting tax planning and potentially lowering taxable income from 2022 to 2026.
Low-Income Families	Expansion of the child tax credit, providing additional support and potentially increasing refunds or reducing tax owed.
American Families	Introduction of refundable child tax credits aimed at alleviating financial stress and boosting household budgets, with benefits varying based on income and family size.

Business Provisions

Qualified Property Rules

Under the new legislation, you can take advantage of 100% bonus depreciation for certain qualified property acquired and placed in service after December 31, 2023, and before January 1, 2026.

Qualified property includes tangible personal property like machinery, equipment, and computers used in your business. Extending these rules provides an immediate deduction, which may help manage cash flow and encourage investment in new assets.

Tax Relief for Research and Development

Investing in domestic research and development is now even more beneficial for your business.

The law includes provisions that allow expenses related to research and development to be fully expensed in the year they are incurred.

This includes not just experimental expenditures but also costs associated with developing new products, processes, or software.

By encouraging innovation, this tax relief aims to keep you competitive and at the forefront of technology and industry advancements.

Interactions with Other Credits

While the bonus depreciation deduction serves as a substantial incentive, it’s essential to understand how it interacts with other credits.

For instance, the employee retention tax credit, designed to encourage the retention of employees during challenging economic times, may be affected by how you choose to claim bonus depreciation.

Furthermore, it’s vital to consider the interplay between bonus depreciation and experimental costs, ensuring you optimize your tax position.

The comprehensive approach to these credits and deductions is designed to support the sustenance and growth of your business in a post-pandemic economy.

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Summary of Bill’s Provisions

Provision	Details
100% Bonus Depreciation	Extension from 2023 to 2026, delaying phaseout.
Deductions for R&D	Rollback of amortization requirement for domestic and foreign R&D costs.
Business Interest Limitations	Change in calculation for net interest expensing back to EBITDA.
Increased Expensing of Business Assets	Increase in maximum amount for expensing under IRC Sec. 179.
Child Tax Credit	Adjustments for inflation and increase in partial refundability maximum.
Taiwan Double Taxation Relief	Expedited relief from double taxation between the US and Taiwan.
Disaster Relief	Extensions and exclusions for disaster-related tax treatments.
Low-Income Housing	Increase in tax credit ceiling and reduction in bond-financing threshold.
1099 Thresholds	Increase in reporting thresholds for 1099-NEC and 1099-MISC.
Employee Retention Credit	Bar on claims submitted after January 31, 2024, and increased enforcement and penalties.

FAQs

What changes have been made to bonus depreciation rates for 2024?

The bonus depreciation rate for 2024 has been adjusted as per the latest tax bill.

The rate shifted from the previous 100% to a lower rate depending on the asset’s acquisition date and type.

Can businesses still claim full bonus depreciation on qualifying assets in 2024?

Yes, businesses can claim 100% bonus depreciation for certain qualifying assets.

However, this percentage is expected to phase out after 2023 for some assets, thus affecting claims in 2024.

How does SEC 179 differ from bonus depreciation for the 2024 tax year?

SEC 179 offers a deduction that directly reduces the asset’s cost, while bonus depreciation allows for an immediate deduction of a certain percentage of the asset’s cost.

Both can be utilized but under different qualifying criteria and limits for the 2024 tax year.

Are there any modifications to the eligibility criteria for assets under the bonus depreciation rules for 2024?

The eligibility criteria have been expanded to include certain used properties.

The definition of qualified property has also been adjusted by recent legislation, as indicated by the Additional First Year Depreciation Deduction (Bonus) FAQ.

Has the Tax Cuts and Jobs Act’s bonus depreciation provision been extended or modified for 2024?

The provisions of the Tax Cuts and Jobs Act regarding bonus depreciation have changed.

These changes include modifications of the percentage and types of property eligible as the act moves toward its phase-out period.

What are the phase-out details for bonus depreciation for the tax year 2024?

The phase-out of bonus depreciation begins in 2024 with reduced rates. It will continue to decrease each year gradually.

What are the positions of Senate Republicans and Senate Majority Leader Chuck Schumer regarding the bipartisan tax bill?

Senate Republicans have expressed concerns about certain aspects of the bill, particularly around its implications for federal revenue and the scope of changes to the tax system. However, discussions are ongoing, and there is interest in reaching a compromise. Senate Majority Leader Chuck Schumer has been actively advocating for the bill, emphasizing its potential benefits for economic growth, innovation, and support for lower-income families. The bill’s progress is subject to negotiations within the Senate, and it requires a joint committee review to address bipartisan concerns and amendments.

How will the new bill impact lower-income families and what changes does it introduce to credits like the low-income housing tax credit and earned income?

The bill introduces enhancements to the low-income housing tax credit and adjustments to the earned income criteria, specifically designed to benefit lower-income families in the United States. By amending the tax law, the bill seeks to provide greater relief and support through the tax system, encouraging investment in affordable housing and increasing the available earned income, thus directly affecting the economic well-being of these families over the next five calendar years.

What is the Bonus Depreciation Bill and how does it affect tax years and taxable years for business owners?

The Bonus Depreciation Bill, recently passed by the U.S. House of Representatives and now awaiting approval by the Senate, amends current tax law to increase the percent bonus depreciation business owners can claim for certain investments. This change applies to both tax years and taxable years immediately following the enactment of the bill. The legislation aims to stimulate economic growth by allowing quicker recovery of costs for capital investments, particularly focusing on longer production period property and experimentation expenditures.