Likely no tax bill will be passed until after the 2024 Presidential election, but there is evidence that both parties support deferring or eliminating the amortization of R&D costs, currently 5 years for domestic R&D and 15 years for foreign research costs. For example, in a bi-partisan bill introduced earlier this year, the Tax Relief for American Families and Workers Act included various measures, such as extending and expanding the Child Tax Credit and Earned Income Tax Credit, implementing temporary tax cuts, and simplifying the tax code. One of the significant provisions in the bill is the repeal of Section 174 of the TCJA, which requires research and development expenses to be capitalized and amortized over a specific period. The bill was approved by the House 357 – 70 but stalled in the Senate due to opposition from most Republicans (mainly due to the Child Tax Credit, not the 174 issue). So although that bill was shot down largely by Republicans, the Trump campaign promises to incentivize bringing back jobs into the U.S. and very likely a key provision would be allowing expensing of R&D costs as part of that incentive package. We have clients for example that decided not to build new R&D facilities in the U.S. or even hire R&D personnel if they can’t get a tax deduction.
On the Democratic side, the bill mentioned above was sponsored by Democrats, so they could perhaps introduce that same bill depending upon the composition of Congress after the election. Or they could include the Section 174 issue as part of a separate bill not tied with the child tax credit since that was the controversial issue which killed the bill last time around.
So although there is bipartisan support for restoring immediate expensing and postponing the capitalization requirement for domestic research expenditures. The future of the bill, including the fate of Section 174, depends on the outcome of the upcoming election and the priorities of the new Congress, as well as including in R&D expensing in any budget since originally disallowing expensing of R&D costs was a revenue raiser and currently still is with short term impact of higher taxable income to companies who previously deducted R&D costs.