This bill amends the Internal Revenue Code to (1) set the bonus depreciation ‘‘applicable percentage’’ at 100% for property placed in service after September 27, 2017, effectively making full expensing permanent; (2) add a neutral cost‑recovery adjustment that inflates depreciation deductions for residential rental and nonresidential real property using the GDP deflator and a 3% annual factor; and (3) reverse the post‑2021 mandatory amortization rule for research and experimental (R&E) expenditures, restoring an immediate deduction while preserving an elective amortization regime.
The package targets capital formation and cash flow for corporations, pass‑throughs, landlords, and R&D firms. It changes technical depreciation math, creates irrevocable election choices, and contains retroactive and forward‑looking effective dates that will affect tax returns, basis calculations, and interaction with credits and the alternative minimum tax framework.
At a Glance
What It Does
It fixes bonus depreciation at 100% under section 168(k), inserts a new section 168(n) that multiplies later depreciation by a GDP‑deflator–based ratio (with a built‑in 1.03^n factor and a floor of 1), and rewrites section 174 to allow immediate deduction of R&E expenses while still permitting an elective amortization over not less than 60 months. The bill also adjusts minimum tax rules to incorporate the new ratio and includes conforming technical edits.
Who It Affects
Capital‑intensive businesses that buy qualified property, owners of residential rental and commercial real estate, R&D‑heavy companies and startups, tax‑shelter structures and pass‑through entities (partnerships, S‑corps, REITs), and tax administrators who must implement new calculations and elections.
Why It Matters
By locking in full expensing and indexing later depreciation to inflation, the bill materially alters investment incentives and timing, shifts cash‑flow and taxable income patterns across years, and reduces federal revenues relative to current law. It also reverses a recent change to R&E tax treatment that had required amortization, restoring immediate tax relief for R&D spending.
More articles like this one.
A weekly email with all the latest developments on this topic.
What This Bill Actually Does
Section 2 rewrites the bonus depreciation mechanics by amending section 168(k) so the statutory ‘‘applicable percentage’’ equals 100 percent for property placed in service after September 27, 2017. The statutory language and several conforming clauses are streamlined; the stated effective date makes the change operate ‘‘as if included’’ in the original Tax Cuts and Jobs Act provision.
Practically, taxpayers will retain the ability to deduct the full cost of qualifying property in the year of acquisition under federal taxable income rules, subject to the familiar qualification rules within 168(k).
Section 3 introduces a new subsection 168(n) that creates a neutral cost‑recovery depreciation adjustment specifically for residential rental property and nonresidential real property. For years after the year of placement in service, taxpayers multiply the ordinary depreciation amount by an ‘‘applicable neutral cost recovery ratio’’ computed from the GDP deflator tied to the quarter of placement versus the quarter corresponding to the taxable year, and then multiplied by 1.03 to the power of full years elapsed.
The ratio is rounded to the nearest .001 and cannot be less than 1, which means this mechanism can only increase, not reduce, depreciation after the year of placement. The provision includes a special rule for property placed in service before enactment, an irrevocable election to opt out for particular property, and an explicit statement that the additional deduction produced by the ratio does not change tax basis or trigger additional recapture under sections 1245/1250.
The bill also amends minimum tax computation rules so the same adjusted deduction is used for AMT purposes.Section 4 replaces the post‑2021 requirement that many research expenses be amortized. The rewritten section 174 allows taxpayers to treat R&E expenditures as current deductible expenses without requiring amortization.
Taxpayers may still elect to treat some R&E as deferred expenses and amortize them ratably over not less than 60 months beginning with the month benefits are first realized; the election timing rules mirror traditional election mechanics (filed by the return due date, subject to any extensions). Conforming edits update the interaction with the research tax credit and related code sections.
The section applies to amounts paid or incurred in taxable years beginning after December 31, 2021, so it operates retroactively for many taxpayers and will affect returns for open years.
The Five Things You Need to Know
The bill sets the ‘‘applicable percentage’’ in section 168(k) to 100% for property placed in service after Sept. 27, 2017, making federal bonus depreciation permanent rather than temporary.
New section 168(n) multiplies post‑placement depreciation for residential rental and nonresidential real property by an ‘‘applicable neutral cost recovery ratio’’ derived from the GDP deflator and a compounded 3% annual factor (1.03^n); the ratio is rounded to .001 and floored at 1.
Taxpayers can elect not to have section 168(n) apply to a particular property, but such an election is irrevocable and must be respected going forward.
The additional depreciation amount produced by the 168(n) adjustment is expressly excluded from adjusted basis calculations and is not treated as depreciation for purposes of sections 1245 and 1250 recapture; pass‑through entities are identified in statute for this rule.
Section 174 is rewritten to allow immediate deduction of R&E expenditures with an option (by election) to amortize deferred R&E over at least 60 months; the change applies to amounts paid or incurred in tax years beginning after Dec. 31, 2021.
Section-by-Section Breakdown
Every bill we cover gets an analysis of its key sections.
Short title
Provides the Act’s popular name, the CREATE JOBS Act, which is purely stylistic but identifies the bill for citation. No tax mechanics are contained here; it signals intent but has no operative effect on tax administration.
Permanence of 100% bonus expensing and conforming edits
Sets the applicable percentage used in bonus depreciation calculations to 100% for property after Sept. 27, 2017 and restructures several subparagraphs for textual clarity. The effective date clause says these amendments take effect as if included in section 13201 of Public Law 115–97, which makes the change operate retroactively to when the TCJA bonus depreciation rules began to phase. Practically, the change eliminates any phase‑down schedule and preserves the familiar qualifying rules in 168(k) (types of property, placed‑in‑service tests, specified plants) but requires tax administrators to treat the provision as having always been in effect since the original enactment date.
Neutral cost‑recovery adjustment for real property and AMT alignment
Creates a new neutral adjustment that increases routine depreciation deductions for residential rental and nonresidential real property to offset inflation and a fixed 3% annual factor. The complex formula uses the implicit GDP deflator for particular calendar quarters, multiplies by 1.03^n where n is full years elapsed, enforces a minimum ratio of 1, and requires rounding to the nearest thousandth. The provision contains a special rule for property placed in service before enactment, allows a one‑time irrevocable election to opt out for any asset, and explicitly prevents the extra amount from altering adjusted tax basis or creating recapture exposure for §1245/§1250. The bill also amends the alternative minimum tax computation so the adjusted depreciation figure is used consistently across regular and minimum tax calculations.
Immediate deductibility of R&E and elective amortization; conforming changes
Rewrites section 174 to permit taxpayers to deduct research and experimental expenditures in the year paid or incurred, rather than forcing capitalization and multi‑year amortization. It preserves an elective route allowing taxpayers to defer and amortize such expenditures over not less than 60 months beginning when benefits are first realized; elections must be made by the return due date and, once chosen, apply to subsequent years unless IRS approves a change. The section also updates cross‑references and modifies section 280C(c) (interaction with the research credit) so that taxpayers who expense R&E face a different offset rule than those who elect the reduced credit; the effective rule applies to amounts in taxable years beginning after Dec. 31, 2021.
This bill is one of many.
Codify tracks hundreds of bills on Finance across all five countries.
Explore Finance in Codify Search →Who Benefits and Who Bears the Cost
Every bill creates winners and losers. Here's who stands to gain and who bears the cost.
Who Benefits
- Capital‑intensive manufacturers and equipment buyers — Immediate full expensing permanently increases after‑tax returns on new plant and equipment and improves first‑year cash flow on large capital outlays.
- Owners of residential rental and commercial property — The GDP‑deflator adjustment can increase depreciation deductions in post‑placement years, improving tax deductions for landlords and commercial owners subject to long recovery periods.
- R&D‑heavy firms and startups — Restoring current expensing for R&E reduces the tax cost of innovation, simplifies tax accounting for early‑stage companies, and can accelerate net operating losses and tax refunds for pre‑profit firms.
- Pass‑through investors and tax planners — The mechanics (including the basis and recapture carve‑outs) and the irrevocable election provide planning tools for partnerships, S‑corporations, and REITs to optimize timing of losses and deductions.
- Corporate and tax departments — Certainty from permanent bonus depreciation removes a recurring legislative risk and lets financial planning and capital budgeting rely on a stable expensing rule.
Who Bears the Cost
- Federal Treasury (taxpayers broadly) — Permanent 100% expensing and increased depreciation reduce federal receipts relative to current law, shifting fiscal burdens or crowding out other priorities.
- State tax authorities that conform to federal definitions — States that piggyback on federal depreciation rules may experience revenue losses and have to decide whether to decouple or enact conforming changes.
- Smaller firms and non‑capital‑intensive competitors — Businesses that do not make large equipment investments receive less relative benefit, potentially widening competitive disparities between asset‑heavy and asset‑light firms.
- IRS and tax administrators — Implementing GDP‑deflator calculations, rounding rules, special retroactivity rules, and irrevocable elections will impose administrative complexity and require guidance, forms, and audit resources.
- Tax advisors and preparers — New computations, irrevocable elections, retroactive application to open years, and interaction with the research credit will increase compliance and planning workloads (and potential advisory fees).
Key Issues
The Core Tension
The central dilemma is between stimulating investment and preserving the tax base: the bill leans decisively toward near‑term investment incentives (permanent full expensing and immediate R&E deductions) while shifting fiscal burden to future budgets and non‑investing taxpayers; at the same time, it layers a technical inflation compensation for long‑lived real estate that attempts neutrality but adds implementation complexity and irreversible election choices.
The bill trades intertemporal tax relief for long‑term revenue. Making bonus expensing permanent and indexing later depreciation for real property both accelerate deductions into earlier or later years in ways that materially change taxable income timing.
The 168(n) formula tries to approximate price inflation and a 3% real growth factor, but GDP deflator series are subject to revisions and the statute’s use of the ‘‘first revision’’ as its data source creates implementation sensitivities. Relying on a specific statistical series raises questions about which vintage to use for partnerships and fiscal‑year taxpayers and how to treat data revisions and late releases.
The restoration of immediate R&E expensing reduces book‑tax mismatches for innovation firms but interacts awkwardly with the R&D tax credit and section 280C mechanics. The bill preserves an elective amortization path, but that election and the new irrevocable opt‑out for 168(n) can lock taxpayers into choices that are difficult to reverse.
Retroactive effective dates (as if included in earlier laws or applying to post‑2021 amounts) create an administrative paper trail: taxpayers may need to amend returns, advisors will need transition guidance, and the IRS must build positions on whether previously filed returns are reopened. Finally, the statute explicitly keeps the additional depreciation from affecting basis and recapture, which eases certain compliance burdens but can create a wedge between tax deductions and economic basis that alters gain/loss recognition at disposition.
Try it yourself.
Ask a question in plain English, or pick a topic below. Results in seconds.