The Tax Relief for American Families and Workers Act of 2024 was passed by the House of Representatives on January 31, 2024, by a 357-70 vote. It now heads to the Senate where it faces an uncertain future. Although the bill hasn’t become law yet, it’s important to be aware of the potential changes, outlined below.
Child Tax Credit
The refundable portion of the credit would be increased over a three-year period (2023, 2024, and 2025). For 2023, the maximum refundable portion would be increased from $1,600 per child to $1,800. In 2024, it would increase to $1,900 and then in 2025 it would be $2,000. The calculation of the refundable credit would change in 2023, 2024, and 2025.
Research and Experimental Expenditures
The bill would allow taxpayers to deduct currently (rather than capitalize and amortize) domestic research and experimental costs that are paid or incurred in tax years beginning after December 31, 2021, and before January 1, 2026. Foreign costs would continue to be capitalized and amortized over a 15-year period.
The bill doesn’t provide any commentary related to claiming the deduction in a tax year for which a return has already been filed. We’re not sure if this will mean amended returns for 2022 will need to be filed or if there will be a way to claim the deduction on a subsequent year’s return.
100 Percent Bonus Depreciation
The bill would extend 100 percent bonus depreciation for property placed in service after December 31, 2022, and before January 1, 2026 (January 1, 2027, for longer production period property and certain aircraft). The 20 percent and 0 percent rates would continue to apply to property placed in service in 2026 and 2027.
Increased Code Sec. 179 Deduction
The bill would increase the amount of the Sec. 179 deduction to $1.29 million in 2024 and increase the beginning phase-out amount to $3.22 million. These amounts would be indexed for inflation for taxable years beginning after 2024.
Business Interest Expense Limitation
The bill would make the limitation on business interest expense deduction less severe. Prior to 2022, when companies computed adjusted taxable income for the purposes of seeing whether their interest expense deduction was limited, they were allowed to add back depreciation, amortization, and depletion expense. This add back was taken away in 2022, making adjusted taxable income smaller and therefore making it more difficult to deduct the full amount of interest expense paid or incurred.
Disaster-Related Tax Relief
The bill would eliminate the requirement that casualty losses must exceed 10 percent of adjusted gross income (AGI) to qualify for the deduction. Each separate casualty would still be subject to a $500 floor. The casualty loss would be able to be taken even if taxpayers don’t itemize their deductions, meaning they would be allowed to claim the casualty loss in addition to the standard deduction. The bill would extend the relief to apply to any federally declared disaster during the period beginning on January 1, 2020, and ending 60 days after the date of the enactment of this bill.
Employee Retention Credit (ERC)
The period for filing ERC claims for both 2020 and 2021 would end as of January 31, 2024. Even if the bill is signed into law after January 31, 2024, the January 31st deadline will likely apply retroactively.
It would also increase the penalty on any “COVID-ERTC promoter” who “knows or has reason to know that an understatement of the tax liability of another person would result from the use of his aid, assistance, or advice.” The penalty would increase from the current $1,000 to “the greater of $200,000 ($10,000 in the case of a natural person) or 75 percent of the gross income of the ERTC promoter derived (or to be derived) from providing aid, assistance, or advice with respect to a return or claim for the credit refund or a document relating to the return or claim.
Gene Gard, CFA, CFP, CFT-I, is a Partner and Private Wealth Manager with Creative Planning. Creative Planning is one of the nation’s largest Registered Investment Advisory firms providing comprehensive wealth management services to ensure all elements of a client’s financial life are working together, including investments, taxes, estate planning, and risk management. For more information or to request a free, no-obligation consultation, visit CreativePlanning.com.
