The Tax Relief for American Families and Workers Act of 2024 (H.R. 7024) was passed by the U.S. House of Representatives with bipartisan support in late January. The legislation aims to provide critical support to job creators, small businesses and working families while saving taxpayers more than $70 billion. Even though the Senate has not yet taken up the bill for a vote, it may see further changes before its final passage.
In this blog, learn more about the key provisions in this act and how they may impact taxpayers once passed.
What does the House-approved version of this tax bill change?
- Child Tax Credit: Increase the refundable portion of the Child Tax Credit for 2023 through 2025, providing more tax relief for families.
- 100% Bonus Depreciation: Extend 100% bonus depreciation retroactively for property placed in service in 2023 through 2025.
- Current law allows for 80% bonus depreciation for 2023 additions, 60% for 2024 additions and 40% for 2025 additions.
- R&D Expenses: Retroactively repeal the requirement to capitalize and amortize domestic research and experimentation expenditures over a five-year period. As part of the changes, there would be various options for taxpayers to deduct R&D costs that may have been capitalized on 2022 tax returns.
- Interest Expense Limitation: Allow taxpayers to disregard (i.e. add to taxable income) depreciation, amortization and depletion deductions when calculating their adjusted taxable income to determine the business interest expense limitation for taxable years beginning in 2024 through 2025 (and optional election to apply to taxable years 2022-2023 retroactively).
Which taxpayers are most likely to be affected?
The IRS has advised that taxpayers who claim the Child Tax Credit should still file their personal tax return as the bill awaits a vote in the Senate. In the event the law expands the Child Tax Credit, the IRS will automatically recompute the appropriate credit.
Business taxpayers, including sole proprietors, may be affected if they have depreciable asset additions (although Section 179 expense may be a workaround solution in certain instances), R&D expenses or limitations on deductible interest expense.
Is the Senate likely to pass this legislation?
At this time, it is unclear when the Senate will debate and vote on the tax bill. President Joe Biden has expressed his support for the bill.
Possible scenarios for the Senate include:
- Pass the House version as written and without amendment
- Amend and pass a different version (which would then require an additional vote in the House)
- Do nothing or fail to pass the bill
How will this affect the timing of my tax return preparation?
Uncertainty remains whether the law will change, when passage may occur and exactly who will be affected. If the law does change, then IRS computers and tax software vendors will need additional time to update their systems.
Given this timeline, it’s recommended to continue preparing and finalizing tax returns based on the tax law currently in effect. If the changes to the proposed act become law and impact your tax situation, your RKL tax advisor will contact you with further details on how this could affect you. In certain instances, your advisor may recommend requesting an extension of time to file your tax return.
It is essential to stay informed of the latest updates regarding the Tax Relief for American Families and Workers Act, and your team of trusted advisors at RKL will closely monitor the status of this legislation and update you accordingly. Please consult your RKL tax advisor with any further questions.
