SAX Legislative Update from the Hill

On Tuesday, June 13th, the House Committee on Ways and Means (hereinafter the “Committee”) passed H.R. 3938 titled the Build It in America Act (hereinafter the “Act”) to restore American competitiveness and bolster economic growth. The Act was written based on feedback that the Committee received from American farmers, families, workers, and small business owners through hearings held across the country this year. Ways and Means Chairman Jason Smith (MO-08) said, “This Committee has traveled over 5,000 miles. The families, farmers, workers, and job creators we’ve heard from have spoken with one voice. They want Congress to invest in America, to give workers and businesses a fair shot at competing with the rest of the world.”

While the Act is comprehensive, the below synopsis will serve to highlight some of the more popular tax incentives, including, but not limited to:

Reinstitution of depreciation, amortization, and depletion as addbacks in determining a taxpayer’s deductible business interest expense.

Sax Insights:  A taxpayer subject to the business interest expense limitation is only permitted to deduct 30% of their Adjusted Taxable Income (“ATI”) in a tax year.  The excess is suspended and carried forward to the subsequent year, subject to the same 30% limitation.  A taxpayer’s ATI is their taxable income subject to certain adjustments.  For tax years beginning before January 1, 2022, depreciation, amortization, and depletion expenses taken as a deduction in determining taxable income are added back for purposes of computing ATI.  This often allowed for a far greater interest expense deduction allowed to the taxpayer.  The Build It in America Act would extend these items as addbacks for years beginning before January 1, 2026.

Extension of 100% Bonus Depreciation.

Sax Insights:  Generally, qualified property placed in service after September 15, 2017, and before January 1, 2023, is eligible for 100% bonus depreciation, meaning that the entire cost of the property can be expensed immediately.  The percentage of qualifying property that can be expensed phases down to 80% for property placed in service in 2023, 60% for property placed in service in 2024, 40% for property placed in service in 2025, and 20% for property placed in service in 2026.  Bonus depreciation is currently scheduled to phase out in its entirety in 2027 and thereafter.

The Build It in America Act would extend 100% bonus depreciation to qualifying property placed in service from 2023 through 2025.  The eligible percentage would still phase down to 20% in 2026 and phase out in its entirety thereafter.  Note that the phasedown period for certain properties with longer production periods does not begin until 2024 and runs through 2027, phasing out entirely in 2028.  The Build It in America Act would extend 100% bonus depreciation through 2026 for this type of property.  The eligible percentage would still phase down to 20% in 2027 and phase out in its entirety thereafter.

Immediate Deductibility of R&D Expenditures

 Sax Insights: Starting in 2022, companies can no longer immediately deduct R&D expenditures under § 174 and are now required to capitalize these expenditures over time, for a minimum of 5 years for domestic R&D spend and 15 years for foreign R&D spend. Noting, the deferral of R&D deductions over 5 years and/or 15 years has led to significantly higher tax bills for businesses of all sizes focused on innovation – forcing them to slow their growth, reduce their workforce, and/or borrow funds to pay a substantially larger year-over-year tax bill to the IRS.

Foreign Tax Credit Relief 

Sax Insights:  The Act aims to enhance the creditability of specific foreign taxes that might have been subject to limitations under existing regulations on foreign tax credits (FTC).  Its purpose is to incentivize the relocation of operations closer to the United States by introducing provisions that allow for determining the creditability of certain taxes, regardless of current FTC regulations that might have previously hindered their creditability.  These eligible taxes are referred to as “Western Hemisphere tax,” encompassing taxes paid or accrued to US possessions and foreign countries located in North, Central, or South America (excluding Cuba and Venezuela).

Sax will continue to provide coverage of the legislative updates from the Hill as the House and Senate work together to pass a unified bill to send before the President’s desk for signature into law in the coming weeks. As a best practice, we advise taxpayers to continue keeping their tax returns on an extension this Summer as Congress works to pass these much-anticipated tax relief provisions in the coming weeks. To read the Act in its entirety, please reference


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