United States

Tax Reform 2.0 boosts expensing for start-up and organizational costs

TAX ALERT  | 

Chairman Kevin Brady released a series of bills which have been dubbed “Tax Reform 2.0” on Sept. 10, 2018. Included in that release was the American Innovation Act of 2018 (H.R. 6756). In that bill, it will be easier for taxpayers to take a current deduction for more start-up and organization costs. The bill also provides for a simplification by including the treatment of organization costs for a partnership into section 195. Under existing law, a taxpayer is able to deduct up to $5,000 of start-up costs but that amount is reduced dollar for dollar to the extent such aggregate start-up costs exceeds $50,000. Organization costs under sections 248 and 709 had the same limit and restriction. The remainder of start-up costs and organizational costs would be recovered ratably over the 180-month period beginning with the month in which the partnership begins business. Under the proposed bill, the costs are combined and the limit is increased to $20,000 but that amount is reduced dollar for dollar to the extent such aggregate start-up costs exceeds $120,000. The remainder is recovered over the same period as current law. The proposed rules would also index the amounts for inflation. The proposed bill also includes provisions that provide for a preservation of start-up net operating losses after ownership changes.

At this time, the prospects for enactment of any of the measures included in this bill, or other parts of Tax Reform 2.0, are quite uncertain. There may be a mark-up by the House Ways and Means Committee and a vote by the full House as early as September, but active Senate consideration of these measures is not currently expected. 

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