Immediate R&D Expensing and Bonus Depreciation Addressed in New Bill.
The House Ways and Means Committee has passed a bill that will extend the ability to immediately deduct R&D expenses. The Build it in America Act (H.R. 3938) came out of committee on June 13 as part of a package of three separate bills, all of which seem to signal Republican tax priorities for the 118th Congress.
The Bill would temporarily repeal the Tax Cuts and Jobs Act (TCJA) change to Section 174 which now requires any and all companies performing research and development to amortize those expenses over 5 years (15 years for foreign research). The ability to immediately deduct expenses would be restored all the way through tax 2025. As written, this would apply to expenses incurred in tax years beginning after December 31, 2021 (tax year 2022 for most businesses).
The Bill also temporarily restores the ability to utilize 100% Bonus Depreciation on commercial property. This would apply to properties placed in service after December 31, 2022, meaning that 100% bonus depreciation is still available for property placed in service before that date.
The package of bills also takes aim at some of the green energy tax breaks passed as part of the Inflation Reduction Act. The Build it in America Act specifically would eliminate the Clean Electricity Production Tax Credit and Clean Electricity Investment Tax Credit, both of which were set to take effect in 2025. Statements from Committee members show that Republicans see these credits as handouts to wealthy electric vehicle owners and a windfall for China’s critical minerals industry which provides many of the raw materials for green energy technology.
The bill presents a good start in repealing harmful tax increases on innovative businesses. There was always talk in Washington that the R&D amortization provision could be temporarily suspended before it is fully repealed. The American Innovation and R&D Competitiveness Act would establish a full repeal. With Republican control of the House and Democrat control of the Senate, temporary suspension may be the best compromise we could hope for in the near future. However, HR 3938 should be facing some serious headwinds in the Senate should it pass the House. The removal of Green Energy Tax Provisions may be too hard of a pill for Democrats to swallow, especially since climate remains the top priority for most Democrats.
For more information on this and other tax issues please contact ATS.
Andrew Parrish is an EA, MBA and is Vice President at Alternate Tax Solutions. He runs the R&D Tax Credit division.