
The Tax Relief for American Families and Workers Act of 2024, passed by the U.S. House of Representatives on January 31, 2024, proposes significant changes to bonus depreciation rules that could have a substantial impact on businesses and the economy.
This blog post will examine the key aspects of these changes and their potential effects.
Extension of 100% Bonus Depreciation
One of the most notable provisions in the Act is the extension of 100% bonus depreciation for qualified property placed in service through 2025. This is a significant change from the current law, which had implemented a phase down schedule:
• 80% for property placed in service in 2023
• 60% for 2024
• 40% for 2025
The Act would maintain the 100% bonus depreciation rate through 2025, reverting to 20% in 2026.
Economic Impact
The extension of 100% bonus depreciation is expected to have a positive impact on the economy:
Increased Investment: By allowing businesses to immediately deduct the full cost of eligible assets, the policy encourages increased capital investment.
Economic Growth: Estimates suggest that making 100% bonus depreciation permanent could increase long-run economic output by 0.4% and the capital stock by 0.7%.
Job Creation: The policy is projected to lead to the creation of approximately 73,000 full-time equivalent jobs.
Sectoral Benefits
The impact of bonus depreciation is not uniform across all sectors. Industries that rely heavily on capital investments are likely to benefit the most. According to analysis, the following sectors are expected to see the largest reductions in corporate tax liabilities as a portion of income:
Agriculture & utilities
Information
Transportation and warehousing
Administrative services
Accommodation and food services
Professional services
Interaction with Other Tax Provisions
The Act also includes provisions that interact with bonus depreciation:
Section 179 Deduction: The Act would increase the maximum deduction for qualified depreciable business assets under Section 179 to $1.29 million (from $1.16 million) and raise the phase-out threshold to $3.22 million (from $2.89 million) for the 2023 tax year.
Interest Deduction Limitation: The Act proposes to allow taxpayers to calculate their Section 163(j) limitation on interest deductions based on earnings before interest, taxes, depreciation, and amortization (EBITDA) rather than earnings before interest and taxes (EBIT) for tax years 2024-2026.
Considerations for Businesses
Given these proposed changes, businesses should consider the following strategies:
1. Timing of Asset Purchases: With the potential extension of 100% bonus depreciation through 2025, businesses may want to accelerate planned capital investments to take advantage of the full deduction.
2. Tax Planning: The interaction between bonus depreciation, Section 179 expensing, and regular MACRS depreciation should be carefully considered to optimize tax strategies.
3. Cash Flow Management: While bonus depreciation can provide significant upfront tax savings, businesses should also consider the long-term impact on their depreciation schedules and future tax liabilities.
Extension of 100% Bonus Depreciation is a Win for Investors and Businesses
The proposed extension of 100% bonus depreciation in the Tax Relief for American Families and Workers Act of 2024 represents a significant opportunity for businesses to accelerate tax deductions on capital investments.
While the Act still needs to pass the Senate and be signed into law, its potential impact on business investment, economic growth, and job creation is substantial. Real Estate investors should closely monitor the progress of this legislation and consult with tax professionals to develop strategies that maximize the benefits of these proposed changes.
The 2024 Act revives 100% bonus depreciation, offering businesses and investors a powerful tool to reduce taxes, boost cash flow, and encourage economic growth.
If you’re considering property improvements or capital expenditures, there’s no better time to reach out to your tax advisor and take action.
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