There is a new bipartisan proposal in Congress that would temporarily and retroactively restore some major cost recovery business deductions and expand the child tax credit through 2025, among other changes. Shown below is a highlight of these impacts.

Temporary Research & Development (R&D) Expenses

• This bill restores full expensing for domestic R&D. At the beginning of 2022, R&D credits had to be amortized over 5 years as implemented by the 2017 Tax Cuts and Jobs Act (TCJA).
• This tax deal would return to R&D expensing retroactively for 2022 and 2023 and continue until the end of 2025.

Temporary Full Expensing for Short-Lived Assets (100% Bonus Depreciation)

• The bill would temporarily restore 100% bonus depreciation for equipment and other short-lived assets. TCJA allowed companies to deduct 100% of these types of assets from 2017 through 2022.
  • In 2023, it began to phase out by 20% and deduct only 80%.
  • In 2024, these assets would be deductible at only 60% of their costs, and so on until they were fully phased out.
• This bill would restore 100% bonus depreciation until the end of 2025.

Temporary Child Tax Credit Expansions

• For tax years 2024 and 2025, the bill would adjust for the maximum child tax credit for inflation, lifting it from $2,000 to $2,100 in both years.
• Currently for 2023, if the child tax credit exceeds a taxpayer’s liability, they may receive up to $1,600 of the credit as a refund based on an earned income formula calculated as 15% of earned income above $2,500.
• This proposal would increase this $1,600 refundable limit to:
  • $1,800 in 2023,
  • $1,900 in 2024, and
  • $2,000 in 2025.

There are some other impacts to this proposal that revolve around inflation adjustments, threshold limitations and other items. But the items listed above are the major retroactive tax implications worth highlighting. We appreciate the opportunity to serve you and will continue to inform you of these ongoing tax updates.