Federal Tax

Potential Tax Law Changes Alert

February 8, 2024

Executive summary: H.R. 7024: Tax Relief for American Families and Workers Act of 2024

On January 31, 2024, the U.S. House of Representatives passed the Tax Relief for American Families and Workers Act of 2024 (H.R. 7024).  Although H.R. 7024 passed with a significant margin in the House, it is still to be determined whether it will be enacted as the Senate has not voted on the bill. Further, it is unclear when voting will occur in the Senate.

H.R. 7024, as currently drafted, includes the following tax legislation:

  • Increases depreciation allowances to promote economic innovation and growth. The bill allows for 100% bonus depreciation for qualifying property placed in service after December 31, 2022, and before January 1, 2026. For longer production period property and certain aircraft, the placed in service date must be after December 31, 2022 and before January 1, 2027. Currently, bonus depreciation is subject to an annual 20% decrease in expensing for property placed in service during each calendar year after 2022 (80% for 2023, 60% for 2024, 40% for 2025, 20% for 2026, and 0% thereafter).
  • Increases the amount of interest that businesses can deduct as an expense. The bill increases the deductibility of business interest by reinstating the depreciation and amortization addback to adjusted taxable income for purposes of computing the Section 163(j) business interest expense limitation. This would apply for tax years beginning after December 31, 2023 (and, if elected, for taxable years beginning after Dec. 31, 2021) and before January 1, 2026. This change would be significant because the interest expense limit currently does not allow for depreciation and amortization addbacks.
  • Immediate expensing of domestic research and experimental expenditures (IRC section 174). Current law provides that domestic research or experimental costs paid or incurred in tax years beginning after December 31, 2021, are required to be capitalized and deducted over a five-year period. Research or experimental costs that are attributable to research that is conducted outside of the United States are required to be deducted over a 15-year period.  The proposed bill would allow domestic research and experimental expenditures paid or incurred in taxable years beginning after December 31, 2021 and prior to January 1, 2026, to be immediately expensed.  This change does not impact foreign research expenditures that would still be subject to 15-year amortization.  The Act allows for taxpayers to reflect the prior Section 174 impact as an accounting method change with either a one-year expense adjustment, or an elective two-year adjustment, or else amend their first year tax return beginning on or after January 1, 2022, to reflect the current expensing of Section 174 costs.
  • Increases and modifies child tax credit provisions. The bill would expand the eligibility for the child tax credit by increasing the refundable portion of the child tax credit to $1,800 for tax year 2023, $1,900 for 2024 and $2,000 for 2025. It would also provide flexibility for taxpayers to use either current, or prior, year income to calculate the child tax credit in 2024 or 2025.
  • Provides special rules for the taxation of residents of Taiwan with income from U.S. sources. The Bill would reduce federal income tax rates on certain types of U.S. source income earned by qualified residents of Taiwan.
  • Increases the availability of Low-income Housing Tax Credits (LIHTC). For calendar years 2023 through 2025, the ceiling on the state housing credit would be increased and the bond-financing threshold would be lowered to 30% for projects financed by bonds with an issue date before 2026.
  • Increases tax relief provisions for disaster impacted communities. The bill provides a gross income exclusion for any amount received by an individual as a “qualified wildfire relief payment.” The term “qualified wildfire disaster” means any federally declared disaster as defined in section 165(i)(5)(A) declared, after December 31, 2014, as a result of any forest or range fire. The bill also provides that East Palestine train derailment payments are treated as qualified disaster relief payments for purposes of section 139(b).
  • Ends employers’ ability to claim the employee retention tax credit after January 31, 2024. This provision would also increase penalties on “COVID-ERTC promoters” under section 6701(a). The bill defines a COVID-ERTC promoter as a person who aids, assists, or advises on an affidavit, refund, claim, or other document related to the ERC if the person charges fees based on the amount of the credit or meets a gross receipts test as defined in the law. This provision was included to help pay for the tax breaks contained in the bill.

The bill has strong bipartisan support; however, its fate is uncertain and provisions of the bill may be modified before passage. Geffen Mesher will keep its clients updated on noteworthy developments related to the bill.

Geffen Mesher’s Professionals can assist you with questions related to these updated rules.  Please get in touch with Federal Tax Exterts for more information at info@gmco.com

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