Democrats and Republicans appeared to narrow some of their differences over a year-end tax extenders package over the last week, raising hopes that a deal to restore expensing of research and experimental (R&E) costs under Section 174, extend 100% bonus depreciation, and provide relief from the Section 163(j) limit on interest deduction remains possible.
For weeks, negotiations appeared largely stalled as Democrats were demanding enhancements to the child tax credit that Republicans insisted were nonstarters. Those stances seemed to soften last week, with Democrats signaling a potential willingness to pare back the potential CTC provisions. The hint of optimism comes after approximately 400 manufacturers, trade organizations, and business groups recently wrote congressional leadership to urge lawmakers to enact a retroactive extension of full expensing of R&E costs under Section 174, 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.
The outlook for a deal nonetheless remains tenuous at best. If Republicans win both the House and Senate in the Nov. 8 elections, they may abandon negotiations in favor of waiting until 2023 when the new majorities are sworn in. Even if Democrats hold onto the Senate, there are no guarantees that 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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