HR3967-119

What This Bill Does

The CREATE JOBS Act is a business tax-expensing bill. First, it makes the section 168(k) applicable percentage 100 percent for qualified property placed in service after September 27, 2017, and for specified plants planted or grafted after that date, effectively making full bonus depreciation permanent and retroactive to the Tax Cuts and Jobs Act framework. Second, it adds neutral cost recovery for residential rental property and nonresidential real property. For applicable real property, depreciation deductions in years after the placed-in-service year are multiplied by a ratio tied to the GDP deflator and a 3 percent annual factor, unless the taxpayer elects out. For property already placed in service before enactment, the formula substitutes the enactment quarter as the starting point. Third, it rewrites section 174 so taxpayers may currently deduct research or experimental expenditures paid or incurred in connection with a trade or business, with optional capitalization and amortization by election. That reverses mandatory capitalization and amortization treatment for R&D expenses. The bill benefits capital-intensive businesses, real estate owners, and research-heavy firms by accelerating deductions and improving after-tax cash flow.

Who Benefits and How

Equipment manufacturers benefit from permanent 100 percent bonus depreciation for qualified property. Agricultural machinery manufacturers benefit when machinery and other qualified property can be fully expensed. Specified plant growers benefit because planted or grafted plants remain eligible for full expensing. Real estate developers benefit from neutral cost recovery adjustments for residential rental and nonresidential real property. Research employers benefit from restored immediate expensing for research or experimental expenditures. Technology startup employers benefit from faster deductions that can improve cash flow or tax attributes.

Who Bears the Burden and How

Federal taxpayers bear the revenue cost of accelerated depreciation and research expensing. IRS depreciation staff must administer permanent bonus depreciation, neutral cost recovery ratios, elections, and section 174 changes. Treasury tax guidance staff may need to issue rules for GDP-deflator calculations, elections, and transition property. Businesses electing out of neutral cost recovery must track elections and property-specific treatment.

Key Provisions

• Provides permanent 100 percent bonus depreciation for qualified property after September 27, 2017.
• Expands full expensing to specified plants planted or grafted after that date.
• Creates neutral cost recovery depreciation adjustments for residential rental and nonresidential real property.
• Allows taxpayers to elect out of neutral cost recovery for applicable property.
• Restores immediate deduction of research or experimental expenditures under section 174.
• Preserves optional capitalization and amortization elections for research expenditures.