Tax Relief for American Families and Workers Act of 2024

The Tax Relief for American Families and Workers Act of 2024, which recently passed the House of Representatives, is a comprehensive piece of legislation designed to provide significant tax relief and support to American families and businesses. The major components of the bill cover a range of provisions aimed at reducing the financial burden on taxpayers and stimulating economic growth.

The bill currently resides with the Senate and is expected to undergo heavy editing. The Republican party has expressed a strong desire to add their own priorities to the tax bill. That coupled with a jam-packed Senate agenda will likely delay the bill’s journey to a formal Presidential signing.

Major Components of the Tax Relief Act

  1. Enhanced Child Tax Credit: The bill seeks to support low-income families dealing with inflation by enhancing the Child Tax Credit (CTC). It includes provisions for indexing the CTC to inflation, and incrementally increasing the refundable portion of the tax credit for the years 2023, 2024, and 2025, offering greater relief to families.
  2. Business Tax Breaks: To stimulate economic growth, the legislation includes tax breaks for businesses. These include allowing businesses to immediately deduct the cost of U.S.-based research and development (R&D) investments, restoring full and immediate expensing for investments in machinery, equipment, and vehicles, and increasing the amount of investment small businesses can write off to $1.29 million.
  3. Disaster Tax Relief: The bill acknowledges the financial impact of natural and man-made disasters by providing tax relief for affected individuals and businesses. This relief covers recent hurricanes, flooding, wildfires, and the Ohio rail disaster.
  4. Affordable Housing Initiatives: To address the shortage of affordable housing, the bill increases the low-income housing tax credit (LIHTC) and reduces the private activity bond financing requirement, facilitating the financing of over 200,000 affordable homes.
  5. Other Provisions: Additional measures include relief from double taxation for residents of Taiwan, expanded Section 179 expensing for small businesses, and modifications to the business interest expense deduction.

Let’s dig into some of the details more pertinent to Evolution Tax & Legal clients.

Breaking Down the Business Tax Breaks in the Tax Relief Bill

The extension of the 100% bonus depreciation rules through the end of 2025, as part of the Tax Relief for American Families and Workers Act of 2024, is a significant provision for businesses across the United States. This policy allows businesses to immediately deduct the full cost of eligible assets, such as machinery, equipment, and vehicles, placed in service before January 1, 2026. Specifically, the rule applies to property placed in service after December 31, 2022, and before January 1, 2026, with certain long-production-period property and specific aircraft having an extended deadline until January 1, 2027​. So what could this mean for businesses?

  • Immediate Cost Recovery: Businesses can deduct the full cost of new or used eligible assets in the year they are placed in service, rather than depreciating those costs over several years. This immediate expense deduction can lower taxable income and reduce the amount of tax owed in the year the investment is made.
  • Encouragement for Investment: By allowing businesses to immediately deduct the full cost of eligible capital expenditures, the policy encourages businesses to invest in new equipment, machinery, and other capital assets. This can lead to increased productivity, expansion of operations, and potentially the creation of new jobs.
  • Cash Flow Improvement: The ability to deduct the full cost of capital investments in the year they are made can significantly improve a business’s cash flow. This is because the tax savings from the deduction can be reinvested back into the business more quickly than if the assets were depreciated over several years.
  • Strategic Planning: Businesses may use the extension of the 100% bonus depreciation rules as part of their strategic planning. Knowing that this rule is in place through the end of 2025, businesses can plan their capital expenditures more effectively, taking advantage of the tax benefits to support growth and expansion strategies.

To qualify for the 100% bonus depreciation, the property must be eligible under the IRS rules. This generally includes tangible property with a recovery period of 20 years or less, certain computer software, water utility property, and qualified improvement property.

What We’re Watching Closely: Election to Apply Extensions Retroactively

An interesting provision including in The Tax Relief for American Families and Workers Act of 2024 bill would allow taxpayers to elect to apply the 100% bonus depreciation to prior years (tax year 2022, which just passed). This would allow certain taxpayers who did take bonus depreciation in 2022, but were limited to 80% bonus depreciation and 60% in 2023 to file amendments should this pass at a later date.

Breaking Down the Expansions of Section 179 in the Tax Relief Bill

Section 179 of the Internal Revenue Code allows businesses to deduct the full purchase price of qualifying equipment and/or software within a tax year rather than requiring the cost to be capitalized and depreciated over several years. The act proposes to increase the maximum deduction amount and the phase-out threshold, further encouraging businesses to invest in new equipment and technology.

Key Expansions of Section 179

  1. Increased Deduction Limit: The bill increases the maximum Section 179 deduction to $1.29 million for the tax year 2024. This is an increase from the previous limit, allowing businesses to deduct a larger portion of their capital expenditures in the year of purchase.
  2. Raised Phase-Out Threshold: Alongside the increased deduction limit, the phase-out threshold—the point at which the maximum deduction begins to be reduced dollar-for-dollar—is also increased to $3.22 million. This adjustment means that more businesses can take full advantage of the Section 179 deduction before the benefit begins to decrease.
  3. Inflation Adjustment: Importantly, these amounts are set to be indexed for inflation for taxable years beginning after 2024. This indexing ensures that the benefits of Section 179 keep pace with the economy, maintaining their value for businesses over time.

Impact on Businesses

  • Immediate Expense Recognition: Businesses can immediately expense more of their capital investments, reducing their current year taxable income and thereby lowering their tax liability.
  • Encourages Capital Investment: By allowing for a larger immediate deduction, Section 179 incentivizes businesses to make investments in new or used equipment and software, potentially leading to business growth and efficiency improvements.
  • Flexibility in Planning: With the increased limits and inflation adjustments, businesses have more flexibility and predictability in tax planning. This can aid in long-term financial planning and budgeting for capital expenditures.

Strategic Considerations

  • Qualifying Property: To qualify for the deduction, the property must be used in the business more than 50% of the time and meet other specific requirements.
  • Tax Position: The benefit of the deduction depends on the business’s tax position. Consulting with a tax professional can help determine how best to leverage Section 179 in conjunction with other tax planning strategies.
  • State Conformity: It’s also important to note that not all states conform to the federal Section 179 deductions. Businesses should verify their state’s conformity to plan effectively.

House Vote Details and Next Steps

The House of Representatives passed the bill on January 31, 2024, with a bipartisan vote of 357 to 70. This reflects a strong bipartisan agreement and clears the path for Senate consideration of the $79 billion tax package.

Senate Consideration

As the bill moves to the Senate, it will undergo further scrutiny and debate. Business leaders and taxpayers are encouraged to express their support for the legislation, emphasizing its importance for investment and job creation in the United States. The bill’s passage in the Senate is crucial for it to become law, after which it would provide the outlined tax relief and economic support measures.

This legislation represents a significant effort to alleviate the tax burden on American families and workers while encouraging economic growth through targeted tax relief and support measures for businesses and individuals affected by disasters. The bipartisan support in the House sets a positive precedent for its consideration in the Senate​​​​​​​​​​.

February 2, 2024

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