US House passes $78 billion tax break bill including AIM-supported provisions

AIM Board Members met with Congressman Smith in 2022 (photo courtesy Candice Allen).

February 1, 2024 - The U.S. House of Representatives passed H.R. 7024, the "Tax Relief for American Families and Workers Act" with a bipartisan vote of 357-70 last night. The bill will now face review in the U.S. Senate and while leadership in the Senate and President Biden have indicated support for the bill, passage through the Senate is not guaranteed as some conservatives have expressed reservations about the bill.

Missouri Congressman Jason Smith, Chairman of the Ways and Means Committee, sponsor of the bill said in a statement, "American families will benefit from this bipartisan agreement that provides greater tax relief, strengthens Main Street businesses, boosts our competitiveness with China, and creates jobs. We even provide disaster relief and cut red tape for small businesses, while ending a COVID-era program that’s costing taxpayers billions in fraud. This legislation locks in over $600 billion in proven pro-growth, pro-America tax policies with key provisions that support over 21 million jobs."

Research and Experimentation Expenses

The bill retroactively reinstates the full deduction for research and experimental expenditures. Current law provides that research or experimental costs paid or incurred in tax years beginning after December 31, 2021, are required to be deducted over a five-year period. The bill delays the date when taxpayers must begin deducting their domestic research or experimental costs over a five-year period until taxable years beginning after December 31, 2025. Therefore, taxpayers may fully deduct currently domestic research or experimental costs that are paid or incurred in tax years beginning after December 31, 2021, and before January 1, 2026.

Business Interest (EBIT vs. EBITDA)

The Tax Cut and Jobs Act passed under the Trump administration stated for tax years beginning before January 1, 2022, the computation of the limitation on the deduction for business interest is determined without regard to any deduction allowable for depreciation, amortization, or depletion (i.e. earnings before interest, taxes, depreciation, and amortization, or EBITDA). The bill extends the application of EBITDA to taxable years beginning after December 31, 2023 (and, if elected, for taxable years beginning after December 31, 2021), and before January 1, 2026. For taxable years beginning

after December 31, 2025, ATI will be again computed as EBIT. This is a big win for the businesses whose interest deductions would otherwise have been limited.

Extension of 100% Bonus Depreciation

Current law contains a phase down of 100-percent bonus depreciation beginning in tax year 2023. The bill extends the 100% bonus depreciation through 2025. Certain exceptions apply.

Section 179 Deduction Limitations

Under Internal Revenue Code section 179, a taxpayer may elect to expense the cost of qualifying property, rather than to recover such costs through tax depreciation deductions, subject to limitation. Under current law, the maximum amount a taxpayer may expense is $1 million of the cost of qualifying property placed in service for the taxable year. The $1 million amount is reduced by the amount by which the cost of such property placed in service during the taxable year exceeds $2.5 million. The $1 million and $2.5 million amounts are adjusted for inflation for taxable years beginning after 2018, and were $1.16 million and $2.89 million in 2023, respectively. In general, qualifying property is defined as depreciable tangible personal property, off-the shelf computer software, and qualified real property that is purchased for use in the active conduct of a trade or business. The bill increases the maximum amount a taxpayer may expense to $1.29 million, reduced by the amount by which the cost of qualifying property exceeds $3.22 million. The $1.29 million and $3.22 million amounts are adjusted for inflation for taxable years beginning after 2024. The proposal applies to property placed in service in taxable years beginning after December 31, 2023.

"Associated Industries of Missouri previously called upon Congress to address these business issues and we are very pleased Chairman Smith was successful in achieving this success for Missouri businesses," said Ray McCarty, president/CEO of Associated Industries of Missouri. "We hope the Missouri delegation in the U.S. Senate will support the bill."

A section-by-section summary of the bill may be found here. Articles about the bill may also be found in POLITICO and The Hill. If you are up for a really deep dive, you may find the actual language of the bill here.