118th CONGRESS 1st Session |
To amend the Internal Revenue Code of 1986 to permanently allow a tax deduction at the time an investment in qualified property is made, and for other purposes.
February 9, 2023
Mr. Cruz introduced the following bill; which was read twice and referred to the Committee on Finance
To amend the Internal Revenue Code of 1986 to permanently allow a tax deduction at the time an investment in qualified property is made, and for other purposes.
Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,
This Act may be cited as the “Cost Recovery and Expensing Acceleration to Transform the Economy and Jumpstart Opportunities for Businesses and Startups Act” or the “CREATE JOBS Act”.
SEC. 2. Permanent full expensing for qualified property.
(a) In general.—Paragraph (6) of section 168(k) of the Internal Revenue Code of 1986 is amended to read as follows:
“(6) APPLICABLE PERCENTAGE.—For purposes of this subsection, the term ‘applicable percentage’ means, in the case of property placed in service (or, in the case of a specified plant described in paragraph (5), a plant which is planted or grafted) after September 27, 2017, 100 percent.”.
(1) Section 168(k) of the Internal Revenue Code of 1986 is amended—
(I) in clause (i)(V), by inserting “and” at the end,
(II) in clause (ii), by striking “clause (ii) of subparagraph (E), and” and inserting “clause (i) of subparagraph (E).”, and
(III) by striking clause (iii),
(aa) by striking subclauses (II) and (III), and
(bb) by redesignating subclauses (IV) through (VI) as subclauses (II) through (IV), respectively,
(II) by striking clause (ii), and
(III) by redesignating clauses (iii) and (iv) as clauses (ii) and (iii), respectively,
(I) in clause (i), by striking “and subclauses (II) and (III) of subparagraph (B)(i)”, and
(II) in clause (ii), by striking “subparagraph (B)(iii)” and inserting “subparagraph (B)(ii)”, and
(I) by striking clause (i), and
(II) by redesignating clauses (ii) and (iii) as clauses (i) and (ii), respectively, and
(B) in paragraph (5)(A), by striking “planted before January 1, 2027, or is grafted before such date to a plant that has already been planted,” and inserting “planted or grafted”.
(2) Section 460(c)(6)(B) of such Code is amended by striking “which” and all that follows through the period and inserting “which has a recovery period of 7 years or less.”.
(c) Effective date.—The amendments made by this section shall take effect as if included in section 13201 of Public Law 115–97.
SEC. 3. Neutral cost recovery depreciation adjustment for residential rental property and nonresidential real property.
(a) In general.—Section 168 of the Internal Revenue Code of 1986 is amended by adding at the end thereof the following new subsection:
“(n) Neutral cost recovery depreciation adjustment for residential rental property and nonresidential real property.—
“(1) IN GENERAL.—In the case of any applicable property, the deduction under this section with respect to such property for any taxable year after the taxable year during which the property is placed in service shall be—
“(A) the amount determined under this section for such taxable year without regard to this subsection, multiplied by
“(B) the applicable neutral cost recovery ratio for such taxable year.
“(2) APPLICABLE NEUTRAL COST RECOVERY RATIO.—For purposes of paragraph (1), the applicable neutral cost recovery ratio for the applicable property for any taxable year is the number determined by—
“(i) the gross domestic product deflator for the calendar quarter ending in such taxable year which corresponds to the calendar quarter during which the property was placed in service by the taxpayer, by
“(ii) the gross domestic product deflator for the calendar quarter during which the property was placed in service by the taxpayer, and
“(B) then multiplying the number determined under subparagraph (A) by the number equal to 1.03 to the nth power where ‘n’ is the number of full years in the period beginning on the 1st day of the calendar quarter during which the property was placed in service by the taxpayer and ending on the day before the beginning of the corresponding calendar quarter ending during such taxable year.
The applicable neutral cost recovery ratio shall never be less than 1. The applicable neutral cost recovery ratio shall be rounded to the nearest 1⁄1000 .
“(3) SPECIAL RULE FOR EXISTING PROPERTY.—In the case of any applicable property which is placed in service before the date of enactment of this subsection, subparagraphs (A)(ii) and (B) of paragraph (2) shall be applied by substituting ‘calendar quarter which includes the date of enactment of this subsection’ for ‘calendar quarter during which the property was placed in service by the taxpayer’ each place it appears.
“(4) GROSS DOMESTIC PRODUCT DEFLATOR.—For purposes of paragraph (2), the gross domestic product deflator for any calendar quarter is the implicit price deflator for the gross domestic product for such quarter (as shown in the first revision thereof).
“(5) ELECTION NOT TO HAVE SUBSECTION APPLY.—This subsection shall not apply to any applicable property if the taxpayer elects not to have this subsection apply to such property. Such an election, once made, shall be irrevocable.
“(6) ADDITIONAL DEDUCTION NOT TO AFFECT BASIS OR RECAPTURE.—
“(A) IN GENERAL.—The additional amount determined under this section by reason of this subsection shall not be taken into account in determining the adjusted basis of any applicable property or of any interest in a pass-thru entity which holds such property and shall not be treated as a deduction for depreciation for purposes of sections 1245 and 1250.
“(B) PASS-THRU ENTITY DEFINED.—For purposes of subparagraph (A), the term ‘pass-thru entity’ means—
“(i) a regulated investment company,
“(ii) a real estate investment trust,
“(iii) an S corporation,
“(iv) a partnership,
“(v) an estate or trust, and
“(vi) a common trust fund.
“(7) APPLICABLE PROPERTY.—For purposes of this subsection, the term ‘applicable property’ means residential rental property or nonresidential real property (as such terms are defined in subsection (e)(2)).”.
(b) Minimum tax treatment.—Paragraph (1) of section 56(a) of the Internal Revenue Code of 1986 is amended by adding at the end thereof the following new subparagraph:
“(E) USE OF NEUTRAL COST RECOVERY RATIO.—In the case of property to which section 168(n) applies, the deduction allowable under this paragraph with respect to such property for any taxable year (after the taxable year during which the property is placed in service) shall be—
“(i) the amount so allowable for such taxable year without regard to this subparagraph, multiplied by
“(ii) the applicable neutral cost recovery ratio for such taxable year (as determined under section 168(n)).
This subparagraph shall not apply to any property with respect to which there is an election in effect not to have section 168(n) apply.”.
(c) Effective date.—The amendments made by this section shall apply to property placed in service before, on, or after the date of the enactment of this Act, with respect to taxable years ending on or after such date.
SEC. 4. Elimination of amortization of research and experimental expenditures.
(a) In general.—Section 174 of the Internal Revenue Code of 1986 is amended to read as follows:
“SEC. 174. Research and experimental expenditures.
“(1) IN GENERAL.—A taxpayer may treat research or experimental expenditures which are paid or incurred by him during the taxable year in connection with his trade or business as expenses which are not chargeable to capital account. The expenditures so treated shall be allowed as a deduction.
“(2) WHEN METHOD MAY BE ADOPTED.—
“(A) WITHOUT CONSENT.—A taxpayer may, without the consent of the Secretary, adopt the method provided in this subsection for his first taxable year for which expenditures described in paragraph (1) are paid or incurred.
“(B) WITH CONSENT.—A taxpayer may, with the consent of the Secretary, adopt at any time the method provided in this subsection.
“(3) SCOPE.—The method adopted under this subsection shall apply to all expenditures described in paragraph (1). The method adopted shall be adhered to in computing taxable income for the taxable year and for all subsequent taxable years unless, with the approval of the Secretary, a change to a different method is authorized with respect to part or all of such expenditures.
“(b) Amortization of Certain Research and Experimental Expenditures.—
“(1) IN GENERAL.—At the election of the taxpayer, made in accordance with regulations prescribed by the Secretary, research or experimental expenditures which are—
“(A) paid or incurred by the taxpayer in connection with his trade or business,
“(B) not treated as expenses under subsection (a), and
“(C) chargeable to capital account but not chargeable to property of a character which is subject to the allowance under section 167 (relating to allowance for depreciation, etc.) or section 611 (relating to allowance for depletion),
may be treated as deferred expenses. In computing taxable income, such deferred expenses shall be allowed as a deduction ratably over such period of not less than 60 months as may be selected by the taxpayer (beginning with the month in which the taxpayer first realizes benefits from such expenditures). Such deferred expenses are expenditures properly chargeable to capital account for purposes of section 1016(a)(1) (relating to adjustments to basis of property).
“(2) TIME FOR AND SCOPE OF ELECTION.—The election provided by paragraph (1) may be made for any taxable year, but only if made not later than the time prescribed by law for filing the return for such taxable year (including extensions thereof). The method so elected, and the period selected by the taxpayer, shall be adhered to in computing taxable income for the taxable year for which the election is made and for all subsequent taxable years unless, with the approval of the Secretary, a change to a different method (or to a different period) is authorized with respect to part or all of such expenditures. The election shall not apply to any expenditure paid or incurred during any taxable year before the taxable year for which the taxpayer makes the election.
“(c) Land and other property.—This section shall not apply to any expenditure for the acquisition or improvement of land, or for the acquisition or improvement of property to be used in connection with the research or experimentation and of a character which is subject to the allowance under section 167 (relating to allowance for depreciation, etc.) or section 611 (relating to allowance for depletion); but for purposes of this section allowances under section 167, and allowances under section 611, shall be considered as expenditures.
“(d) Exploration expenditures.—This section shall not apply to any expenditure paid or incurred for the purpose of ascertaining the existence, location, extent, or quality of any deposit of ore or other mineral (including oil and gas).
“(e) Only Reasonable Research Expenditures Eligible.—This section shall apply to a research or experimental expenditure only to the extent that the amount thereof is reasonable under the circumstances.
“(1) For adjustments to basis of property for amounts allowed as deductions as deferred expenses under subsection (b), see section 1016(a)(14).
“(2) For election of 10-year amortization of expenditures allowable as a deduction under subsection (a), see section 59(e).”.
(b) Clerical Amendment.—The table of sections for part VI of subchapter B of chapter 1 of such Code is amended by striking the item relating to section 174 and inserting the following new item:
“Sec. 174. Research and experimental expenditures”.
(1) Section 41(d)(1)(A) of such Code is amended by striking “specified research or experimental expenditures under section 174” and inserting “expenses under section 174”.
(2) Section 280C(c) of such Code is amended to read as follows:
“(c) Credit for Increasing Research Activities.—
“(1) IN GENERAL.—No deduction shall be allowed for that portion of the qualified research expenses (as defined in section 41(b)) or basic research expenses (as defined in section 41(e)(2)) otherwise allowable as a deduction for the taxable year which is equal to the amount of the credit determined for such taxable year under section 41(a).
“(2) SIMILAR RULE WHERE TAXPAYER CAPITALIZES RATHER THAN DEDUCTS EXPENSES.—If—
“(A) the amount of the credit determined for the taxable year under section 41(a)(1), exceeds
“(B) the amount allowable as a deduction for such taxable year for qualified research expenses or basic research expenses (determined without regard to paragraph (1)),
the amount chargeable to capital account for the taxable year for such expenses shall be reduced by the amount of such excess.
“(3) ELECTION OF REDUCED CREDIT.—
“(A) IN GENERAL.—In the case of any taxable year for which an election is made under this paragraph—
“(i) paragraphs (1) and (2) shall not apply, and
“(ii) the amount of the credit under section 41(a) shall be the amount determined under subparagraph (B).
“(B) AMOUNT OF REDUCED CREDIT.—The amount of credit determined under this subparagraph for any taxable year shall be the amount equal to the excess of—
“(i) the amount of credit determined under section 41(a) without regard to this paragraph, over
“(I) the amount described in clause (i), and
“(II) the rate of tax under section 11(b).
“(C) ELECTION.—An election under this paragraph for any taxable year shall be made not later than the time for filing the return of tax for such year (including extensions), shall be made on such return, and shall be made in such manner as the Secretary may prescribe. Such an election, once made, shall be irrevocable.
“(4) CONTROLLED GROUPS.—Paragraph (3) of subsection (b) shall apply for purposes of this subsection.”.
(d) Effective date.—The amendments made by this section shall apply to amounts paid or incurred in taxable years beginning after December 31, 2021.