While the 2025 tax cliff will be subject to whichever party controls the White House and Congress after the 2024 elections, in January, a tenuous bipartisan agreement was reached to provide critical and immediate tax relief for American families, workers and businesses. Senate Finance Committee Chair Ron Wyden, D-Ore., and House Ways and Means Chair Jason Smith, R-Mo., proposed the Tax Relief for American Families and Workers Act to extend key tax provisions for American businesses and provide additional certainty to the construction industry.
Passed by the House on Jan. 31 with a considerably bipartisan 357-70 vote, the deal remains more uncertain in the Senate, where procedural hurdles and conservative concerns remain over the bill’s pay-for and the expansion of Democratic priorities.
DEDUCTIONS AND DEPRECIATION
Most critically, the bill’s inclusion of the immediate deduction for research and development, the extension of the 100% bonus depreciation and increased relief for small-business expensing will grow our economy and ensure America’s global competitiveness. The construction industry benefits both directly and indirectly from the tax code’s robust historical preference for R&D. The combination of immediate cost recovery and incentives has allowed contractors to embrace innovative new tools, technologies and materials that continue to improve the efficiency, safety and sustainability of the construction process.
In addition to innovations in project delivery, the tax treatment of R&D is a driver of new construction, as new technologies spur investments in everything from advanced manufacturing facilities and energy generation to storage and more efficient buildings. Contractors have benefited from and come to count on the tax code’s reliable treatment of R&D expenses for more than half a century. Allowing for immediate R&D expensing leads to lower tax bills, less paperwork and easier compliance for contractors.
Extending the 100% bonus depreciation will also have a significant impact on the construction industry at a fraught time for the U.S. economy. For the past five years, construction businesses could expense or write off the purchase of tools, equipment and machinery during the same year in which they were purchased. Preserving this beneficial tax policy will be essential to guaranteeing the success of key construction projects funded by bipartisan congressional legislation, including the Infrastructure Investment and Jobs Act and the CHIPS Science Act.
PRO-GROWTH POLICIES
The bill also offers critical relief for more small businesses through an increase in expensing under Section 179, raising the maximum amount a taxpayer may expense for property placed in service from $1 million to $1.29 million starting in 2024. This increase will allow for improved cash flow, increased investment and a further reduction in the tax disparity between small and large businesses in the United States.
Notably, as a pay-for of the $78-billion package, Congress accelerated the timeline to file a claim under the COVID-era Employee Retention Tax Credit from April 2025 to the end of January 2024. While the program was viewed as a critical lifeline to contractors throughout the country during the pandemic, there have been significant concerns that fraud and misuse from bad actors has led its costs to vastly exceed expectations.
While the bill’s odds of passing into law have increased, the Senate looks to pump the brakes on fast-tracking the process, potentially taking the bill through committee and an amendment process that could return it to the House sometime in March—and with modifications that could result in a more contentious vote. If Congress can work toward enacting these critical pro-growth tax policies, it will provide much-needed relief and support for American workers and businesses at a pivotal time.
