Tax Legislation Update

The House Ways and Means Committee recently announced The American Families and Jobs Act, which includes three bills (H.R. 3936, H.R. 3937, and H.R. 3938) that could impact farmers.

• The Tax Cuts for Working Families Act (H.R. 3936) would increase the standard deduction by $4,000 (married filing jointly taxpayers) for the next two years.

• The Small Business Jobs Act (H.R. 3937) would, among other provisions:

-Increase section 179 expensing to $2.5 million

-Create rural opportunity zones

-Extend certain tax incentives to S-Corporations

• The Build it in America Act (H.R. 3938) would, among other provisions:

-Allow companies to immediately deduct research and development costs

-Allow additional interest expensing for taxpayers subject to the limitations under I.R.C. 163(j) by using 30% of “earnings before interest, taxes, depreciation and amortization, (EBITDA)” instead of “earnings before interest and taxes (EBIT).”

-Extend 100% bonus depreciation through 2025. Bonus depreciation would still be on schedule to be reduced to 20% in 2026. 

The research and development expensing, I.R.C. 163(j) and bonus depreciation provisions would all be retroactively rolled back and last until 2025. 

Bipartisanship is required for any tax legislation to pass, but there may be room for optimism here. Senate Finance Committee Chairman Ron Wyden, (D-Ore.) recently said, “Democrats are interested in helping businesses and American families at the same time. Pairing tax cuts for businesses and families has been the bipartisan practice for several years in recent memory. I’m hopeful there’s enough common ground for the two sides to reach an agreement this year, and I’m going to work with my colleagues in the Senate on our own priorities.” For consensus to be reached, and to Senator Wyden’s point, an expansion of the child tax credit would likely need to be included in any legislation.

In May’s blog post, located here, it was noted New York state farmers who utilize bonus depreciation will qualify for additional state tax credits. Additionally, for farmers who plant orchards and vineyards, a special provision of bonus depreciation is allowed when the planting occurs. Prior to that provision, bonus depreciation could only be taken once the plantings became commercially productive.

We’ll keep watch for updates regarding these provisions as they work their way through the legislative process as many of these items could impact farm decisions for 2023 and beyond.