This week’s midterm Congressional elections will set the stage for a potential year-end tax extenders package — which could include a retroactive restoration of expensing research and experimental (R&E) costs under Section 174, an extension of 100% bonus depreciation, and, possibly, relief from the Section 163(j) limit on interest deduction.
While negotiations on an extenders package have largely appeared stalled over the past few months — as Democrats demanded enhancements to the child tax credit that Republicans insisted were nonstarters — those stances have seemed to soften over the past few weeks, with Democrats signaling a potential willingness to pare back the potential CTC provisions after roughly 400 manufacturers, trade organizations, and business groups urged congressional leadership to enact R&E relief, stating a switch to amortization instead of full expensing would lead to a loss of more than 400,000 jobs over the next 10 years.
In addition, on Oct. 27, 51 members of the House New Democrat Coalition (NDC) caucus called on House leadership to prioritize the enhanced child tax credit in an end-of-year legislative package as well as to advance R&E expensing fix. While not all of the 99-member NDC signed onto the statement, the letter is still a notable display of Democratic support for a potential compromise extenders package in the lame-duck session.
Still, the outlook for an extenders deal remains tenuous. If Republicans win both the House and Senate in the midterm elections, they may abandon negotiations in the lame-duck session in favor of waiting until 2023 when the new majorities are sworn in. And even if Democrats hold onto the Senate, there are no guarantees that House Democrats, Senate Democrats and Republicans can reach an acceptable compromise for both sides.
While a deal remains possible, taxpayers should consider how a failure to reach an extenders deal could affect their estimated tax payments, financial statements and business plans. Taxpayers also should assess the impact of amortizing R&E costs and could consider accelerating investments to place property in service before the scheduled expiration of 100% bonus depreciation.
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