CREATE JOBS Act
The CREATE JOBS Act would make several significant changes to how business investments and research costs are treated for tax purposes. The centerpiece is permanently allowing 100% expensing (bonus depreciation) for qualified property, meaning businesses can deduct the full cost of new property in the year it’s placed in service. The bill also introduces a new “neutral cost recovery” mechanism for residential rental and nonresidential real property to adjust depreciation deductions over time for inflation, and it expands how these adjustments interact with minimum tax rules. Finally, it repeals the amortization requirement for research and experimental expenditures, allowing immediate expensing of such costs (with rules for opt-in and election timing). The changes take effect broadly, with some provisions applying retroactively to property placed in service since 2017 and others applying to taxable years after enactment. Together, these provisions are designed to accelerate the deduction of capital investments and certain costs, reduce tax complexity around depreciation, and potentially boost economic activity by encouraging earlier investment in property and R&D.
Key Points
- 1Permanent 100% expensing for qualified property (bonus depreciation)
- 2- Amends IRC §168(k) to set the applicable percentage at 100% for property placed in service after September 27, 2017, effectively making the 100% expensing permanent.
- 3- Includes conforming adjustments to reorganize related depreciation provisions and related plant rules, and modifies the 7-year or shorter recovery period rule in §460(c)(6)(B).
- 4Neutral cost recovery depreciation adjustment for rental and real property (Section 168(n))
- 5- Adds a new subsection that, for residential rental property and nonresidential real property, applies a neutral cost recovery ratio to the standard depreciation deduction after the property is placed in service.
- 6- The ratio is calculated from the GDP deflator and a growth factor of 1.03 raised to the number of full years in the depreciation period, with a floor of 1.0 (never less than 1) and rounded to the nearest 0.001.
- 7- Includes special rules for existing property, an irrevocable election option, and rules to prevent the adjustment from affecting basis or depreciation recapture for pass-through entities (e.g., partnerships, S corporations, REITs, etc.).
- 8- The ratio is also incorporated into minimum tax calculations under §56(a), ensuring consistency in how this adjustment affects tax liability.
- 9Elimination of amortization for research and experimental expenditures (R&E)
- 10- Repeals the amortization requirement for R&E expenditures under §174 and instead treats such expenditures as deductible expenses (with an optional method to amortize as deferred expenses if elected per the revised rules).
- 11- If the taxpayer elects to defer, the expenditures can be deducted ratably over a minimum of 60 months (and the election is binding for all such expenditures for the year elected).
- 12- Extends related conforming amendments to references in §41 and §280C to reflect the change from amortization to immediate expensing for R&E, and clarifies interaction with other tax credits.
- 13- Effective for amounts paid or incurred in taxable years beginning after December 31, 2021.
- 14Effective dates and retroactivity
- 15- Section 2 amendments take effect as if included in section 13201 of Public Law 115-97 (Retroactive to the 2017 treatment of 100% expensing).
- 16- Section 3 applies to property placed in service before, on, or after the date of enactment (taxable years ending after enactment), with special rules for existing property.
- 17- Section 4 applies to amounts paid or incurred in taxable years beginning after December 31, 2021.