By Martin E. Prendergast
Gray, Gray & Gray, LLP
Since the availability of immediate R&D expensing was eviscerated by the Tax Cuts and Jobs Act (TCJA) of 2017, business advocates and many members of Congress have been actively seeking to reverse the changes. The new rules requiring R&D spending to be amortized over five years (15 years for foreign expenditures) are still in place, resulting in higher tax bills and disincentivizing research and experimentation across many industries.
However, there has been some progress made in reversing this change by repealing Section 174 of the TCJA. In June, the House Ways & Means Committee approved the Build It In America Act (H.R. 3938) which included a provision that would allow taxpayers to deduct qualified R&D expenses in the tax year in which they were incurred. The Act would allow the deduction beginning in the tax years after December 31, 2021, and before January 1, 2026, effectively “backdating” the immediate deduction allowance.
The Build It In America Act would also extend the 100% bonus depreciation provision for qualified property placed in service before January 1, 2026. This provision allows businesses to accelerate their depreciation deductions and enhance their cash flow.
There is a long way to go to obtain full House approval and then approval in the Senate before the Build It In America Act becomes law. But the positive action does provide some hope that this important R&D tax deduction will be restored to its original form and intent.
For more information on R&D tax credits please contact us at (781) 407-0300.
Martin Prendergast is a Senior Tax Manager in the Architecture, Engineering & Design Practice Group at Gray, Gray & Gray accounting and advisory firm based in Canton, Mass. He can be contacted at (781) 407-0300 or at mprendergast@gggllp.com