In the context of cost segregation in 2024, a pivotal development unfolded as the House Ways and Means Committee overwhelmingly approved, by a decisive 40-3 vote last Friday, the bipartisan Tax Relief for American Families and Workers Act of 2024. This legislative milestone encompasses a multifaceted approach, notably extending 100% bonus depreciation through 2025, alongside provisions for research and development expensing and an augmentation of the Child Tax Credit.
Crafted in collaboration between Senate Finance Committee Chairman Ron Wyden and House Ways and Means Committee Chairman Jason Smith, the legislation also addresses the small-business expensing cap, elevating the immediate write-off limit for small businesses to $1.29 million, a notable increase from the previous $1 million cap instituted in 2017.
Chairman Jason Smith underscored the urgency during the Friday morning markup, emphasizing the challenges faced by small and midsize businesses contending with interest rates at their highest in 23 years. The bill, having received bipartisan approval, is now poised for consideration on the House floor.
This legislative initiative is set to reinstate critical business provisions such as 100% bonus depreciation, R&D expensing for domestic R&D exclusively, and a more flexible limitation on business interest deductions, all extending through the fiscal year 2025. Concurrently, the bill charts a course for the enhancement of the maximum refundable amount per child, progressively reaching $1,800 in tax year 2023, $1,900 in tax year 2024, and culminating at $2,000 in tax year 2025, with adjustments for inflation in the latter two years.
Examining the current state of bonus depreciation, the 2023 phase allows businesses to write off 80% of an asset’s purchase price in the calendar year of its placement into service, gradually decreasing to 60% in 2024, 40% in 2025, 20% in 2026, and eventually reaching 0% by 2027.
Delving into the criteria for depreciable assets, the IRS mandates ownership, business income generation, a lifespan of at least one year, and placement in service during the tax year. This encompasses a range of assets such as machinery, vehicles, computers, and office furniture.
In elucidating the fundamentals, asset depreciation, according to the IRS, involves the gradual recovery of property costs over several years, thereby reducing a company’s tax liability throughout the asset’s lifespan. Bonus depreciation, on the other hand, represents an accelerated tax deduction mechanism, allowing for the immediate write-off of a substantial portion of an asset’s purchase price in a single fiscal year.
Originally instituted in 2002 to stimulate business investment post-9/11, bonus depreciation underwent a paradigm shift with the 2017 Tax Cuts and Jobs Act (TCJA), enabling businesses to write off 100% of eligible property costs placed into service between September 27, 2017, and January 1, 2023. Beyond this cut-off date, the legislation mandates a gradual phase-out of bonus depreciation.
Given the bipartisan support for this consequential bill, there is a high level of confidence in its eventual passage. Vigilantly monitoring its progress, I am committed to providing timely updates as developments unfold in this dynamic legislative landscape.