The House Passed a Bill That Might Reinstate 100% Bonus Depreciation—Here’s What Investors Should Understand
At the end of January, the House approved legislation that extends some provisions from President Donald Trump’s 2017 tax bill and expands the Child Tax Credit (CTC), among other tax reform measures.
If passed by the Senate and signed into law by President Biden, the Tax Relief for American Families and Workers Act of 2024 would allow real estate investors to continue taking advantage of 100% bonus depreciation; elect to expense depreciable business assets up to an increased limit; deduct business interest up to a higher limit; as well as restore domestic research or experimental cost expensing.
Furthermore, this legislation would extend a 2020 tax relief measure for people in qualified disaster areas and restore an increase in LIHTC ceiling, which will allow states to issue more credits to affordable housing project developers.
This package mitigates the costs of cuts by curtailing retroactive Employee Retention Credit claims made retroactively under COVID; such retroactive claims have become a popular target for fraudsters over time. Most provisions will expire by the end of 2025; according to The Tax Foundation, any extension or making them permanent would incur costly additional offsets and would increase budget deficit.
Will the Senate Pass Legislation? The tax relief bill represents a bipartisan compromise in that it provides business-friendly tax breaks while supporting affordable housing initiatives and expanding the Child Tax Credit. Qualifying low and moderate-income families with children could take advantage of its expansion by qualifying under its provisions for further lowering tax liabilities; inflation-adjustments in 2024-2025 would allow further savings while changes to calculations for credits would benefit families with multiple children.
Tax Filing Season has already kicked off and legislation that may impact filings this year is now imminent. It appears likely that a bill containing measures important to both political parties will pass in the Senate; an analyst from Raymond James estimates its chances are greater than 50%; both President Trump and Senate Majority Leader Chuck Schumer strongly back it; yet some potential roadblocks exist as well.
Potential Challenges
Senators from both political parties are calling for a Senate Finance Committee mark-up, which could delay its enactment. Even if brought directly to the floor for consideration, recommended amendments could change its details or necessitate further House action; but Senate Finance Committee Chairman Ron Wyden (D-Ore.) expressed enthusiasm about working together quickly with his colleagues on passing it quickly.
Each side could challenge these provisions; parties have long debated whether tax breaks for businesses trickle down to American workers or hinder economic growth.
Recent research by researchers at the Joint Committee on Taxation and Federal Reserve Board of Governors indicates that 81% of gains derived from 2017 Tax Cuts and Jobs Act (TCJA) go directly to top earners; further, White House Council of Economic Advisers concluded that its revenue-reducing provisions increased structural deficit.
A global survey of 42 primary studies with mixed findings indicates that corporate tax cuts have no discernible effect on economic growth, which may concern some Democrats regarding certain business tax breaks included in TCJA in any new legislation.
The Institute on Taxation and Economic Policy also warns that the Tax Relief for American Families and Workers Act could provide outsized gains to foreign investors investing in U.S. corporations, assist corporations with tax avoidance while not actually increasing investment and diminish the Employee Retention Tax Credit eligibility of small businesses that actually meet its requirements.
Republican opponents of corporate tax cuts believe their long-term effects have yet to be measured on worker wages and see the bill’s worth regarding economic growth. Some blame Democrat spending for inflation; so they might object to its revenue implications when expanding CTC; some worry it would increase deficits further fuelling inflation.
Critics argue that the one-year income lookback period proposed in the legislation for determining CTC eligibility weakens incentives for low-income Americans to work, allowing families with no income in that year to still receive it as credits.
But the legislation was approved with a strong bipartisan vote of 357-70 in the House, suggesting there is widespread support for its passage.
