On Monday, October 14, AGC submitted comments to the Committee on Ways and Means “tax teams.” These teams, started by Chairman Jason Smith (R-Mo.) earlier this year, have solicited input from interested parties about legislative priorities going into 2025, when many important provisions from the 2017 Tax Cuts and Jobs Act (TCJA) expire. This is a second in a series of in-depth reviews of some of these priorities to highlight certain tax provisions that have proven to be important to the industry over the previous seven years. Today’s section will focus on “expensing,” which is the ability of businesses to fully deduct the cost of equipment in the year that it is purchased, rather than depreciated over time.
AGC strongly supported the provisions of the TCJA to increase cost recovery in the tax code through temporary “100 percent bonus depreciation” and increased small business expensing—to $1 million with a $2.5 million phaseout, permanently indexed to inflation—under Section 179 of the tax code. Additionally, adding eligibility for used equipment, in addition to new equipment, under the rules for bonus depreciation, were a significant improvement and this has been widely utilized by the construction industry. Unfortunately, the provisions related to bonus depreciation expired in 2023, and will phase down over the next 5 years.
Full expensing is both good for the economy and businesses, but also a significant tax simplification measure. Rather than having to calculate and record depreciation, which for some pieces of equipment can last decades, businesses can instead deduct the full cost of equipment in the year that it was purchased. This also improves cash flow and makes it easier for contractors to replace aging equipment. In the construction industry, this means it is easier for companies to access equipment that is safer, cleaner, and more efficient.
It’s also important to note that deducting the cost of equipment in the year that it is purchased, rather than depreciating it over time, is not a “tax cut” but is instead a timing shift. Over time, the “cost” of extending this important policy becomes marginal. This important pro-growth policy should be fully restored and made permanent.
If you have any questions or would like additional information, please contact Matthew Turkstra at (202) 547-4733 or matthew.turkstra@agc.org.