2024 Tax Landscape: Congress Contemplates Changes — The Tax Letter Unveils

The prospect of year-end tax legislation dims with congressional lawmakers on holiday hiatus. However, behind this seasonal quietude lies a buzz of activity, hinting at potential tax changes expected to unfold by mid-2024. The odds of such changes materializing currently hover around the 50-50 mark.

Upon their return in early January, lawmakers face a packed agenda. Key items on the docket include negotiating military funding for Ukraine and Israel, addressing heightened security concerns at the U.S.-Mexico border amidst the immigrant crisis, and resolving the imperative task of funding the government to avert a shutdown looming in January or February.

Should a tax package materialize, it’s crucial to examine potential inclusions. Republicans are keen on fully restoring three prominent business tax breaks:

1. R&D Expenses: Republicans aim to revert to the pre-2022 provision, where firms could fully expense Research and Development (R&D) costs in the year incurred. The 2017 tax law altered this, requiring firms to amortize R&D expenses over five years and 15 years for overseas research from tax years starting after 2021.

2. Bonus Depreciation: Before 2023, businesses enjoyed deducting the entire cost of qualifying business assets with a lifespan of 20 years or less. The 100% write-off reduced to 80% in 2023, and it’s poised to further decline to 60% in 2024, creating a cascading scale.

3. Interest Deductions: The Republicans seek to revisit the 2017 tax law’s limitations on large businesses’ net interest write-offs, adjusting it to 30% of adjusted taxable income, starting with tax years commencing in 2022.

Conversely, Democrats focus predominantly on expanding the child tax credit as a means to alleviate child poverty. Despite desiring a higher, fully refundable credit with advance monthly payments akin to 2021 rules, Democrats acknowledge the formidable cost and the absence of GOP support. They contemplate narrower expansions, such as augmenting the credit for working parents or fully refunding the current credit.

Surprisingly, a few tax-related matters enjoy bipartisan support. These include relief for victims of federally declared disasters from 2021 to 2023, expanded tax credits for low and middle-income housing builders, and technical corrections to the SECURE 2.0 legislation enacted in late 2022.

While the 2024 tax deal remains in the spotlight, certain issues won’t be part of the package. Notable among these are extensions of individual provisions from the 2017 tax law, like lower tax rates, increased standard deductions, and the 20% write-off for qualified business income, all scheduled to conclude after 2025. Additionally, a mark-to-market tax regime targeting the assets of the ultra-rich, exemplified by Senator Ron Wyden’s Billionaire Income Tax proposal, is not expected to be included. This proposal would necessitate individuals with over $100 million in income or $1 billion in assets to pay tax on annual built-in gains, regardless of selling the underlying asset.