H.R. 3967: Cost Recovery and Expensing Acceleration to Transform the Economy and Jumpstart Opportunities for Businesses and Startups Act

This bill, known as the "Cost Recovery and Expensing Acceleration to Transform the Economy and Jumpstart Opportunities for Businesses and Startups Act" or the "CREATE JOBS Act," aims to amend the Internal Revenue Code to provide certain tax benefits to businesses, particularly regarding how they can deduct expenses related to investments and research. Below are the key provisions of the bill:

1. Permanent Full Expensing for Qualified Property

The bill proposes to allow businesses to immediately deduct 100% of the cost of qualified property at the time of investment, rather than spreading the deduction over several years. This means that businesses can recover their costs right away, potentially improving cash flow and incentivizing investment in new property.

2. Neutral Cost Recovery Depreciation Adjustment

This section introduces a neutral cost recovery depreciation adjustment for residential rental properties and nonresidential real properties. It suggests that the deduction for such properties in subsequent tax years will be adjusted based on a ratio tied to the gross domestic product (GDP) deflator to account for inflation. This adjustment ensures that property owners are compensated for the economic changes over time.

3. Elimination of Amortization of Research and Experimental Expenditures

Under this provision, businesses would be allowed to treat research and experimental expenses as immediate expenses that can be deducted entirely in the year they are incurred, instead of requiring these costs to be capitalized and amortized over several years. This change aims to encourage more investment in research and development by allowing businesses to reduce their taxable income more quickly.

4. Tax Treatment for Existing Property

The bill includes a provision for existing properties that were placed in service before the enactment of the legislation, intending to apply the updated tax methods retroactively. This aims to provide consistent treatment of property under new tax rules.

5. Optional Election for Taxpayers

Taxpayers would have the option to elect not to apply some of the new rules if they choose. This flexibility allows businesses to select the most beneficial tax treatment for their situation.

6. Rounding of Neutral Cost Recovery Ratios

To maintain simplicity in calculations, the bill stipulates that the neutral cost recovery ratio will be rounded to the nearest 1/1000th. This aims to simplify accounting processes for property deductions.

7. Effective Date

The changes proposed in this bill will apply to property placed in service before, on, or after the enactment date, with respect to tax years ending on or after that date. This broad effective date seeks to maximize the impact of the benefits outlined in the legislation.

Relevant Companies

• GOOGL (Alphabet Inc.) - Likely to benefit from immediate expensing for R&D and technology investments, improving cash flow and facilitating further innovation.
• AAPL (Apple Inc.) - May experience a boost in tax deductions for investments in property and experimentation in product development, enhancing their financial performance.
• MSFT (Microsoft Corporation) - Could see significant benefits from the ability to write off R&D and investments upfront, fostering continued growth in software innovation.