AGC-supported legislation introduced to make permanent 20% tax deduction for pass-through businesses and to expand write offs for small businesses’ equipment.

Two pieces of tax legislation supported by AGC of America were recently introduced in the House and Senate.

In the Senate, Sen. Steve Daines (R-MT) introduced the Main Street Tax Certainty Act along with 14 co-sponsors.  This legislation would make permanent the “qualified business income deduction” (also known as the Section 199A deduction) that was created in the Tax Cuts and Jobs Act in 2017. 

The deduction, which provides a 20 percent deduction to the owners of pass-through businesses (such as S-Corporations, Sole Proprietorships, LLC’s, and Partnerships) was a top priority for AGC to ensure relative “tax parity” for construction firms organized as pass-throughs compared to those organized as C-Corporations.  Unfortunately, this tax provision, along with others that affect pass-through businesses, were made temporary in the TCJA and expire in 2025, while the reduction in the corporate tax rate was made permanent.  Without passage of the Main Street Tax Certainty Act or similar legislation to extend the qualified business income deduction, pass-through businesses will face a significant tax increase after 2025.

In the House of Representatives, Rep. Blake Moore (R-UT) introduced the Small Business Growth Act along with 9 co-sponsors.  The bill would double the thresholds for “small business expensing” (also called Section 179 expensing) from $1 million to $2 million, and phasing out at $3.5 million.

Expensing allows companies to write off the full cost of equipment in the year that it is purchased and placed into service, rather than depreciated over time.  The Tax Cuts and Jobs Act expanded expensing to apply to used equipment in addition to new equipment, which was a major AGC priority.  For the past 6 years, Section 179 expensing has not been as important as it used to be, because the TCJA allowed companies to use full expensing, regardless of their size.  This provision (called “100 percent bonus depreciation”) was temporary, however, and began to phase down after 2022.  This year, companies can only write off 80 percent of the cost of equipment in the year that it is purchased and placed into service.  Next year it will fall to 60 percent, and so on, until equipment will have to be fully depreciated.

With expanded Section 179 expensing in the Small Business Growth Act, smaller construction firms would be able to expense up $2 million going forward, regardless of what happens to bonus depreciation.