S. 2056 — CREATE JOBS Act

This section makes permanent full expensing (i.e., 100% bonus depreciation under IRC §168(k)) for qualified property placed in service after September 27, 2017 (previously phasing down from 100% through 2022 to 80% in 2023, 60% in 2024, 40% in 2025, 20% in 2026, and 0% thereafter), including specified plants planted or grafted after such date (previously limited through 2026). It makes conforming amendments to remove phase-down provisions and related transition rules and applies retroactively as if included in the 2017 tax reform law (P.L. 115-97). (Thus, businesses may immediately deduct the full cost of eligible assets such as machinery, equipment, and certain software.)

This section establishes a neutral cost recovery depreciation adjustment under IRC §168(n) for applicable property (i.e., residential rental property and nonresidential real property), under which the annual depreciation deduction after the placed-in-service year equals the otherwise allowable amount multiplied by the applicable neutral cost recovery ratio. That ratio equals the ratio of the gross domestic product (GDP) deflator for the calendar quarter ending in the taxable year (corresponding to the property's placement quarter) to the GDP deflator for the property's placement quarter, multiplied by 1.03 raised to the power of the number of full years elapsed (n); the ratio is at least 1.0 and rounded to the nearest 1/1000. (Thus, the adjustment generally increases depreciation deductions over time to reflect inflation plus 3% annual growth.) For property placed in service before enactment, the placement-quarter GDP deflator is replaced by the enactment-quarter deflator. Taxpayers may irrevocably elect out of the adjustment, and any additional deduction is disregarded for adjusted basis and §§1245/1250 recapture (including for pass-thru entities such as REITs, S corporations, and partnerships). The adjustment also applies under the alternative minimum tax (IRC §56(a)(1)(E)), with the same opt-out rule. The provision applies to property placed in service before, on, or after enactment, for taxable years ending on or after the enactment date.

This section revises Section 174 of the Internal Revenue Code to permit taxpayers to immediately deduct research or experimental expenditures paid or incurred in connection with their trade or business (restoring the optional full expensing available prior to tax years beginning after December 31, 2021, when such expenditures became subject to mandatory capitalization and amortization over five years for domestic research or 15 years for foreign research). It retains the option to amortize certain capitalized expenditures over a period of not less than 60 months (beginning with the month benefits are first realized) and makes conforming amendments to Sections 41(d) and 280C(c) (coordinating with the research tax credit).