Law & Order

New Changes to R&D Tax Credit and Bonus Depreciation Deductions

By SEMA Washington, D.C., Staff

When the 2017 tax law was enacted, it allowed companies to amortize certain tax deductions over one year, but the benefit was only temporary. The business community urged Congress to extend the provisions in 2022; however, despite widespread support in Congress, lawmakers did not enact the extensions. Of particular interest:

Until 2021, companies could take a 100% tax deduction for research and development spending in the year it occurred. Starting in 2022, companies have to deduct their R&D expenses over a five-year time period.

Under the 2017 law, a company could expense 100% of the cost of any Section 179 property (includes equipment, vehicles, and software) and deduct it in the year the property was placed in service between Sept. 28, 2017 and December 31, 2022. The law increased the maximum deduction to $1 million and increased the phase-out threshold to $2.5 million, adjusted for inflation. The Section 179 deduction now phases out over the next four years: 80% in 2023, 60% in 2024, 40% in 2025, and 20% in 2026. Unless the law is changed by 2027, the bonus deduction will disappear and companies will have to go back to spreading-out the depreciation over many years.

For more information, contact Eric Snyder at erics@sema.org.