Bipartisan, Bicameral Tax Proposal in the News
House Ways and Means Committee Chairman Jason Smith (MO – 08) and Senate Finance Committee Chairman Ron Wyden (D – OR) announced a bipartisan, bicameral tax framework that would “promote the financial security of working families, boosts growth and American competitiveness, and strengthens communities and Main Street businesses.” The proposal is titled, “The Tax Relief for American Families and Workers Act of 2024” and is organized into six parts: Tax Relief for Working Families, American Innovation and Growth, Increasing Global Competitiveness, Assistance for Disaster-Impacted Communities, More Affordable Housing, and Tax Administration and Eliminating Fraud.
For the purposes of this post, we are only highlighting the portions of the “The Tax Relief for American Families and Workers Act of 2024” that might be relevant to the real estate industry:
- Deduction for Research or Experimental Expenditures. Current law requires that research or experimental costs that are paid or incurred in tax years beginning after December 31, 2021, need to be deducted over a five-year period. Research or experimental costs that are attributable to research conducted outside of the United States need to be deducted over a 15-year period. This proposal would delay the date when taxpayers must begin deducting their domestic research or experimental costs over a five-year period until taxable years beginning after December 31, 2025. This would mean that taxpayers could immediately deduct domestic research or experimental costs that are paid or incurred in tax years beginning after December 31, 2021, and before January 1, 2026.
- Extension of Allowance for Depreciation, Amortization, or Depletion in Determining the Limitation on Business Interest. For tax years beginning before January 1, 2022, the computation of adjusted taxable income for purposes of the limitation on the deduction for business interest was determined without regard to any deduction allowable for depreciation, amortization, or depletion. This proposal would extend the application to taxable years beginning after December 31, 2023 (and, if elected, for taxable years beginning after December 31, 2021), and before January 1, 2026. For taxable years beginning after December 31, 2021, and before January 1, 2024, adjusted taxable income would be computed with regard to deductions allowable for depreciation, amortization, or depletion.
- Extension of 100% Bonus Depreciation. Prior to December 31, 2022, taxpayers were able to benefit from 100% bonus depreciation on certain assets for federal tax purposes. The amount of allowable bonus depreciation started to be reduced beginning January 1, 2023. The rate is scheduled to decrease ratably over four years: 80% will be allowed for property placed into service in 2023, 60% in 2024, 40% in 2025, and 20% in 2026. This proposal would extend 100% bonus depreciation for qualified property placed in service after December 31, 2022, and before January 1, 2026. The provision would retain 20% bonus depreciation for property placed in service after December 31, 2025, and before January 1, 2027.
- Increase in Limitations on Expensing of Depreciable Business Assets. Under current law, the maximum amount a taxpayer may expense is $1,000,000 of the cost of qualifying property placed in service for the taxable year. The $1,000,000 is reduced by the amount by which the cost of such property placed in service during the taxable year exceeds $2,500,000. This proposal would be applicable for property placed in service in taxable years beginning after December 31, 2023 and would increase the maximum amount a taxpayer may expense to $1,290,000, reduced by the amount by which the cost of qualifying property exceeds $3,220,000.
- State Housing Credit Ceiling Increase for Low-Income Housing Credit. In calendar years 2018 through 2021, the 9% Low Income Housing Tax Credit (LIHTC) ceiling was increased by 12.5%, allowing states to allocate more credits for affordable housing projects. This proposal would restore the 12.5% increase for calendar years 2023 through 2025 and is effective for taxable years beginning after December 31, 2022.
- Tax-Exempt Bond Financing Requirement with Respect to LIHTC. Under current law, a building must either receive a credit allocation from the state housing finance authority or be bond-financed in order to receive LIHTC. To be bond-financed, 50% or more of the aggregate basis of the building and land must be financed with bonds that are subject to a state’s private activity bond volume cap. This proposal would lower the bond-financing threshold to 30% for projects financed by bonds with an issue date before 2026. There is also a proposed transition rule for bonds with an issue date in 2024 or 2025. This provision would be effective for buildings placed in service after December 31, 2023.
- Increase in Threshold for Information Reporting on Forms 1099-NEC and 1099-MISC. The reporting threshold for payments by a business for services performed by an independent contractor or subcontractor and for certain other payments is $600. This proposal would increase the threshold to $1,000 and adjust it for inflation after 2024 (applies to payments made after December 31, 2023).
- Enforcement Provisions with Respect to COVID-Related Employee Retention Tax Credit. My colleague Jennifer Rohen published an awesome article that dives into the details on this section of the proposal. You can check it out here.
While all of this is a very big step forward, there is still no actual bill, nor any guarantee that these provisions will actually be enacted in a very divided Congress. Stay tuned and let’s cross our fingers for some meaningful action in Washington D.C. in 2024!
Source: https://waysandmeans.house.gov/smith-wyden-announce-agreement-on-tax-framework-to-help-families-and-main-street-businesses/
- Carey M. Heyman, CPA
- Managing Principal of Industry - Real Estate
- CliftonLarsonAllen LLP
- Century City (Los Angeles)
Carey is the Managing Principal of the Real Estate Industry at CLA. He is a trusted advisor with close to 20 years of experience providing accounting, assurance, tax, and consulting services to real estate industry owners, operators, family offices, developers and syndicators. Carey has a strong track record of helping clients build and retain capital by leveraging tax- and cost-saving strategies and employing tax credits and incentives. He also consults with high net worth individuals, large family groups, and owners of closely-held businesses on all aspects of tax planning, estate planning, and retirement planning.
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