Senate Blocks Business and Family Tax Relief Bill, Impact on Bonus Depreciation

The Senate’s August 2024 vote blocking H.R. 7024 halted efforts to restore 100% bonus depreciation and extend business-friendly tax rules introduced in the 2017 Tax Cuts and Jobs Act (TCJA). Bonus depreciation, which allowed businesses to immediately deduct 100% of qualified property costs, had phased down to 80% in 2023. The bill’s rejection leaves bonus depreciation on a scheduled decline through 2026, eventually reaching 0%.

Bonus depreciation and cost segregation have been crucial tools for businesses aiming to accelerate deductions and enhance cash flow. Cost segregation studies help identify assets eligible for faster depreciation schedules, making them prime candidates for bonus depreciation. However, with the Senate's decision, the potential tax savings from these strategies are significantly impacted, stretching deductions over several years rather than being concentrated in the first year.

The blocked bill, H.R. 7024, also included broader tax provisions such as raising the small business expensing cap and providing immediate expensing for R&D investments. Its failure signals the Senate’s ongoing division over tax reforms that support business growth.

Why It Matters

With the sunset of 100% bonus depreciation approaching, businesses must reconsider their strategies. For those heavily reliant on cost segregation to accelerate asset deductions, the effectiveness of bonus depreciation is greatly reduced. For example, in 2023, companies were already limited to 80% bonus depreciation, and as the percentage declines further, the tax savings available in the first year of an asset’s life will diminish.

This situation presents a challenge for companies looking to maximize immediate tax savings through real estate investments or large capital expenditures. The Senate’s block of H.R. 7024 underscores the ongoing uncertainty surrounding tax legislation and highlights the need for businesses to stay flexible in their tax planning strategies.

Looking Ahead

While efforts to pass a full tax relief bill appear to be stalled, there may be future opportunities in Congress to revisit these provisions, potentially during the 2024 lame-duck session. For now, businesses must adjust to lower bonus depreciation percentages, making cost segregation and other depreciation strategies more critical for maximizing long-term savings. Cost segregation still offers benefits by allowing businesses to reclassify assets and shorten their depreciation lives, but without the support of full bonus depreciation, the tax advantages will be less immediate.

The uncertain future of bonus depreciation creates an incentive for businesses to act quickly on any current opportunities for asset acquisitions, particularly before the next phase-down occurs. However, the broader landscape of U.S. tax policy remains in flux, and businesses should be prepared for further changes as Congress continues to debate the best path forward.

ThriveVista assists property owners in identifying tax-saving opportunities through cost segregation. We leverage our extensive experience in engineering, specialty tax, and market knowledge to develop practical strategies and implement customized solutions that maximize financial benefits for our clients.