Bipartisan legislation that restores the immediate deductibility of research and development expenses was approved by the U.S. House of Representatives on Jan. 31.
The R&D provisions, part of a package that includes increasing the child tax credit, would retroactively restore the deductibility of U.S.-based R&D investments to the year in which they’re incurred. If passed by the Senate and signed into law, the immediate deductibility would reverse the amortization of domestic R&D expenses over five years that was imposed as part of the 2017 tax legislation.
Capitalization requirements for domestic R&D expenses would be delayed until 2026. Note that international R&D expenses are still required to be capitalized and amortized.
Other provisions include:
- Increasing the Section 179 deduction limit to $1.29 million, reduced by the amount by which the cost of acquired assets exceeds $3.22 million. Both amounts would be adjusted for inflation for taxable years beginning in 2024.
- Restoring 100% bonus depreciation for property placed in service after December 31, 2022, and before January 1, 2026.
- Changing business interest deductions under Section 163(j) to allow depreciation and amortization back into the limit calculation (as was allowed before the 2022 tax year).
We’ll continue to monitor this legislation. If you have questions about this legislation and how it might impact your business, contact us.
