Despite months of negotiations and debate, the U.S. Senate failed to pass HR 7024, titled the “Tax Relief for American Families and Workers Act of 2024.” The bill’s failure means that several proposed changes to the U.S. tax code will not be implemented, affecting both individuals and businesses. This outcome particularly impacts rules on research and development (R&D) expenditures and bonus depreciation.
For businesses, the failure of HR 7024 means that current tax rules will remain in place. These unchanged provisions may result in higher tax liabilities for many businesses, potentially limiting capital available for investment and growth.
- The requirement to amortize domestic research and experimental expenditures over five years remains in effect. This rule, which began in 2022, impacts businesses that previously could fully deduct these costs in the year they were incurred.
- The phase-down of bonus depreciation will continue as scheduled. For property placed in service in 2023, businesses can deduct 80% of the cost. This percentage will decrease to 60% in 2024, 40% in 2025, and 20% in 2026, before being completely phased out in 2027.
- The current Section 179 expensing threshold limits remain unchanged, potentially limiting the ability of small and medium businesses to immediately deduct the full cost of certain property.
- The existing rules for calculating limitations on business interest deductions will continue without modification.
- Proposed changes to the low-income housing tax credit will not be implemented, potentially impacting affordable housing development.
- Proposed changes to increase the informational reporting threshold for Forms 1099-MISC and 1099-NEC from $600 to $1,000 will not be deployed.
For individual taxpayers, the proposed expansion of the child tax credit will not occur. The refundable portion of the credit will remain at its current level, and the $2,000 credit amount will not be indexed to inflation.
In addition, proposed disaster relief provisions for individuals, including more favorable treatment of disaster-related personal casualty losses and exclusion of certain wildfire disaster relief payments from gross income, will not be implemented.
On the international front, the special tax rules for certain residents of Taiwan with U.S. source income will not be established, and the authorization for negotiating a broader tax agreement between the U.S. and Taiwan to address double taxation issues will not be granted.
The revenue-raising and enforcement provisions included in the bill, such as increased penalties related to promoters of improper COVID-related employee retention tax credits and extended statute of limitations for related tax assessments, will not be enacted.
With the failure of HR 7024, taxpayers and businesses will continue to operate under the existing tax code. This means that the opportunity to file amended returns to take advantage of favorable retroactive changes, including the delay of amortization of R&D expenditures and bonus depreciation until 2025, will not materialize.
Taxpayers who extended their 2023 tax filings while holding out hope for relief from H.R. 7024 should consider moving forward with completing their 2023 filings due September and October 2024. Meanwhile, now is the time for taxpayers to begin planning and strategizing with their advisors for 2024 and beyond as the outlook for future tax reform remains uncertain.
For more information on this and other tax issues please contact Gray, Gray & Gray at 781.407.0300.