Important Update: Senate Fails to Pass Tax Relief for American Families and Workers Act
We wanted to update you on recent developments from Capitol Hill that may impact your tax planning. In a significant move after months of anticipation, the Senate voted on the highly anticipated Tax Relief for American Families and Workers Act (TRAFWA), aimed at easing the financial burden on millions of Americans. Championed by Senate Majority Leader Chuck Schumer, this landmark piece of legislation promised to deliver much-needed economic relief to all businesses, especially small to midsized ones.
Key Insights:
The bipartisan bill passed the House overwhelmingly, 357-70, on January 31, 2024, and had been stalled in the Senate since. This bill included major relief provisions, such as:
- Restoring immediate expensing for IRC 174 research and experimental expenditures
- Restoring 100% bonus depreciation
- Enhancing IRC 163(j) interest deductions
Certain members of the Senate raised issues with various aspects of the bill since its arrival in January. Sixty votes were needed to invoke cloture (a process to limit debate within the Senate) and move the bill forward to a full vote on the Senate floor.
Unfortunately, on August 1, 2024, the Senate voted 48-44, well below the 60-vote requirement to close off debate and vote on the final passage of the bill by a simple majority.
Impact on Real Estate Clients:
Had it passed, TRAFWA would have retroactively reinstated 100% bonus depreciation. As it stands for 2024, bonus depreciation is set to decrease to 60%, down from 80% in 2023. This rate is scheduled to decrease further to 40% in 2025, 20% in 2026, and will be phased out entirely in 2027. The failure to pass TRAFWA means that the current limitations on bonus depreciation will remain in place, affecting the immediate expensing of certain real estate improvements and investments.
Impact on Clients with R&D:
For our clients engaged in research and development (R&D), the failure to pass TRAFWA means that the favorable provisions for IRC 174 research and experimental expenditures will not be reinstated. Currently, the Tax Cuts and Jobs Act of 2017 requires these expenses to be amortized over five years (15 years for foreign research), rather than allowing for immediate expensing. This limitation will continue to affect cash flow and tax planning for R&D activities..
Conclusion:
Taxpayers must still comply with the provisions implemented with the Tax Cuts and Jobs Act of 2017, which instituted these changes. While the bill did not pass today, there is still hope that it may pass after this election year.
We will continue to monitor the situation closely and keep you informed of any new developments. If you have any questions about how this may impact your real estate investments, R&D activities, or overall tax planning strategies, please reach out to us at adminteam@capatacpa.com. For any other inquiries, feel free to contact us as well.
Stay informed with Capata – Your trusted partner in navigating tax complexities!
