The U.S. House of Representatives voted 357-70 last week to pass H.R. 7024, the Tax Relief for American Families and Workers Act of 2024, a $78 billion tax package negotiated by House Ways and Means Chairman Jason Smith (R-MO) and Senate Finance Chairman Ron Wyden (D-OR). It will next be considered by the U.S. Senate.
The package would repurpose all remaining funding from the Employee Retention Tax Credit (ERTC), to help pay for a limited expansion of the child tax credit and reinstatement of lapsed business tax deductions, some of which may be applicable to senior living communities, including:
Extension of Higher Thresholds to the Business Interest Deduction Limitation – Code Section 163(j)
- Code Section 163(j) disallows deductions for business interest expenses in excess of the sum of (i) business interest income, (ii) 30% of “adjusted taxable income” and (iii) “floor plan financing interest” expenses in the current taxable year.
- For taxable years beginning before 2022, “adjusted taxable income” generally was based on the taxpayer’s EBITDA. Under current law, for taxable years beginning on or after January 1, 2022, “adjusted taxable income” was based on the taxpayer’s EBIT (i.e., taking into account deductions for depreciation, amortization and depletion), which generally allowed lower business interest deductions than under the earlier EBITDA calculation.
- This provision would revert to the pre-2022 calculation by going back to EBITDA as the measure for “adjusted taxable income,” which generally would increase the business interest deduction limitation.
- Note that this limitation does not apply to taxpayers with gross receipts under $30 million for 2024. Therefore, by extending this provision, the bill only impacts businesses with average annual gross receipts for the three-year period ending with the prior taxable year in excess of $30 million (inflation-indexed).
Increased Limitation on Expensing of Depreciable Business Assets – Code Section 179
- This provision would increase the maximum amount that a business can expense immediately in the year certain depreciable property is placed into service, rather than spreading the amount as a deduction over the useful life of the property.
- Under current law, the amount of the deduction is limited to an inflation-adjusted amount, which for 2024 is $1.22 million, and the limit is reduced dollar-for-dollar by the amount the expense is in excess of $3.05 million.
- Under the proposed law, the amount of the deduction for 2024 would be capped instead at $1.29 million rather than $1.22 million and this amount would be reduced dollar-for-dollar by the amount of the expense is in excess of $3.22 million, rather than $3.05 million.
- This provision is targeted at small and medium sized businesses as the allowance phases out where an expense exceeds $3.22 million.
- The type of property that qualifies for this provision includes most forms of tangible property (e.g., machinery, equipment, furniture and vehicles), as well as certain improvements to non-residential property.
Extension of Bonus Depreciation Amount – Code Section 168(k)
- This provision would increase the scope of property that is eligible for immediate, 100% “bonus” depreciation deductions a business can claim when an asset is placed into service, rather than spreading the cost of the asset over the useful life of the asset.
- Under current law, a business is eligible to deduct the following amounts of qualifying property in the first year that the property is placed in service under the bonus depreciation method:
- 2023 – 80%
- 2024 – 60%
- 2025 – 40%
- 2026 - 20%
- Under the proposed law, a business would be eligible to take a deduction of 100% of the cost of qualifying property in the year that they are placed in service, for property placed in service before January 1, 2026.
- Bonus depreciation generally is applicable to most forms of tangible property (e.g., machinery, equipment, furniture, and vehicles), with a depreciation “recovery period” of 20 years or less.
- Unlike the increased limitation on expensing provision, there isn’t a “phase out” amount, so this provision could be beneficial to more than just small-medium sized businesses.
House Republicans separately agreed to consider H.R. 7160, the SALT Marriage Penalty Elimination Act, in an effort to appease Republicans representing districts traditionally held by Democrats, which would increase the state and local tax (SALT) deduction cap to $20,000 for one-year. That bill advanced out of committee on an 8-5 vote. The tax package also still needs to secure the support of Senate Republicans, including Senate Finance Committee Ranking Member Mike Crapo (R-ID), who has cited concerns with the child tax credit expansion.
