Tax Bill Overwhelmingly Clears House

OMAHA (DTN) -- Farmers might actually get a chance to deduct larger equipment purchases and buildings after the House of Representatives overwhelmingly passed a $78 billion tax package Wednesday night.

The House voted 357-70 to pass a tax package that includes a mix of business tax credits along with an expansion of the child tax credit.

Under the bill, farmers and other small businesses would get a boost from plans to allow 100% bonus depreciation for certain property, including 20-year buildings. Or farmers could opt for a slightly higher Section 179 deduction for 2024 equipment, which serves the same purpose.

Another tax credit farmers have utilized in the past for Research and Development (R&D) also is tweaked in the package.

Even clearing the House with wide bipartisan support -- 188 Democrats and 169 Republicans backed it -- the Washington Post reported there were questions raised over whether Senate Republicans would pass a bill that appears to give President Joe Biden an election year win. Sen. Chuck Grassley, R-Iowa, raised that issue.

"I think passing a tax bill that makes the president look good -- may allow checks before the election -- means that he can be reelected and then we won't extend the 2017 tax cuts," Grassley said, according to the Post.

Rep. Jason Smith, R-Mo., chairman of the House Ways and Means Committee, defended the tax package as "pro-growth, pro-jobs and pro-America."

"Because of this bill, working parents crushed by high prices will have an easier time putting food on the table, more things will be made here in America, and the nation will be more competitive with China," Smith said. "I am eager to get this bill passed by the Senate and signed into law. Millions of working families and Main Street businesses are counting on Congress to get this done. Let's deliver."

EXTENSION OF 100% BONUS DEPRECIATION

Under the bill, bonus depreciation would return to 100% for qualified property placed into service after Dec. 31, 2022, meaning it would be retroactive to the beginning of 2023.

The proposal would extend out 100% bonus depreciation for property put into service before Jan. 1, 2026.

Currently, bonus depreciation for the 2023 tax year is set at 80% and it fell to 60% for the 2024 tax year unless Congress moves ahead with an updated tax plan.

Bonus depreciation can be more attractive for farmers because it applies to buildings such as machine sheds that have a 20-year depreciation schedule. Those don't qualify for the Section 179 deduction.

BUMP IN SECTION 179 LIMITS

Under IRS Code Section 179, farmers and other small businesses for the 2023 tax year could deduct $1.16 million in equipment purchases as long as their total equipment did not exceed a $2.89 million cap. The deduction drops for every dollar spent over that limit. For property put into service on Jan. 1, 2024, or after, the expensing option bumps up to $1.2 million and the cap is raised to $3.05 million.

The tax bill would increase the expense amount up to $1.29 million and raise the cap for qualifying property up to $3.22 million. Both amounts would increase based on inflation for taxable years after 2024.

HIGHER THRESHOLD FOR 1099 FORMS

Businesses that have a lot of independent contractors are required now to issue 1099 forms to people for payments $600 or higher. The legislation would bump that up to $1,000 starting in 2024.

R&D TAX CREDIT

The bill would correct a problem from the 2017 tax law that started requiring companies in 2022 to spread out the Research and Development (R&D) tax credit over five years instead of taking the deduction in a single year. That provision ended up putting a lot of companies in a bind over tax liabilities that they thought would be deducted.

The R&D tax credit can apply to a variety of items on farm operations when they are testing new software, planting or irrigation techniques or conservation strategies. Even converting to no-till, planting cover crops or applying new crop-disease products can qualify for the R&D credit.

CHILD TAX CREDIT

The bill broadens the maximum refundable credit amount, raising it from $1,600 per child to $1,800 per child for 2023; $1,900 for 2024; and $2,000 for 2025. Another provision for 2024 and 2025 allows taxpayers to use a prior year's taxable income to calculate the maximum credit if for some reason they made less money in the current year.

Wyden indicated the changes to the Child Tax Credit would help as many as 15 million children from lower-income families.

OTHER PROVISIONS

The bill includes certain tax relief for companies operating in Taiwan. The Low-Income Housing Tax Credit is improved, which could lead to as many as 200,000 more affordable housing units being built as well. Another provision would provide better tax treatment for disaster-related losses of personal property. Part of that also excludes income for taxpayers who received certain government payments tied to wildfire losses. The lawmakers also cited the need to reduce waste and fraud by eliminating a pandemic tax credit, the Employee Retention Tax Credit program.

Chris Clayton can be reached at Chris.Clayton@dtn.com

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