A bipartisan deal between leaders of the House and Senate tax-writing committees would raise limits on the Section 179 expensing provision that is popular with farmers.
The deal also would restore a bonus depreciation provision to 100%. Both provisions are used by farmers to reduce the cost of equipment and machinery.
Under the Tax Cuts and Jobs Act, passed in 2017, the bonus depreciation provision that allows a business to immediately write off the cost of equipment or buildings dropped from 100% to 80% of the purchase price in 2023 and is scheduled to fall to 60% this year, 40% in 2025 and 20% in 2026 before ending in 2027.
The agreement announced Tuesday between House Ways and Means Committee Chairman Jason Smith, R-Mo., and Senate Finance Chairman Ron Wyden, D-Ore., would restore the provision to 100% through 2025, aligning it with the expiration of several other TCJA provisions, including an expanded estate tax exemption and the Section 199A 20% deduction on pass-through business income.
The Section 179 expensing allowance allowed businesses to write off up to $1.16 million of the cost of equipment and software for 2023, with the limit phased down dollar for dollar as spending exceeds $2.9 million. The Smith-Wyden deal would raise the expensing limit to $1.29 million and increase the phaseout threshold to $3.22 million, with both indexed to inflation.
Smith had originally sought to raise the expensing limit to $2.5 million and boost the phaseout threshold to $4 million.
“This legislation locks in over $600 billion in proven pro-growth, pro-America tax policies with key provisions that support over 21 million jobs,” Smith said in a statement.
Roger McEowen, a specialist in tax law at Washburn University in Kansas, said the increases in the congressional agreement are relatively modest. “It would only be relevant to the larger farming operations that have purchases in a year sufficient enough to take advantage of the increase. That smells like a political compromise to me,” he said in an email.
Section 179, which can be combined with bonus depreciation, was made permanent under the TCJA.
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McEowen said the temporary restoration of 100% bonus depreciation “will incentivize the ‘frontloading’ of qualified purchases before (2026). Not sure I see what this accomplishes. The total depreciation effect is the same over the life of the asset. This would just cause a shift in the year of asset purchases.”
The congressional deal includes an expansion of the child tax credit, which was a priority for Democrats.
“Fifteen million kids from low-income families will be better off as a result of this plan, and given today’s miserable political climate, it’s a big deal to have this opportunity to pass pro-family policy that helps so many kids get ahead,” Wyden said in a statement.
Under current law, the maximum refundable credit was capped at $1,600 per child for 2023. Under the agreement, the limit would rise to $1,800 for 2023 and then go to $1,900 for 2024 and $2,000 for 2025, along with an inflation adjustment for both those years.
Luis Guardia, president of the Food Research and Action Center, welcomed the expansion of the child tax credit.
“The expanded and fully refundable 2021 CTC was a saving grace for families during the pandemic, helping them cover household needs — from putting food on the table to handling housing expenses, debts, child care, and even making up for lost wages. Unfortunately, this critical expansion expired after 2021, leaving millions of families scrambling,” Guardia said in a statement.
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