If/when software goes out of use, it can be written down and deducted immediately. The 5 years is a maximum, not a minimum.

I don't think that is true. From what I'm reading there is no acceleration.

What happens when changing broken parts on a machine that's amortizing, or repairs

Repairs and maintenance would generally be expensed.

Expansions and improvements would generally be capitalized.

It's not really that black and white. The production of new software would be capitalized, just like the production of basically any other product. Resources/developer time spent on maintence would be deducted immediately, however.

And... if you have to write down an intangible asset you can... and that will reduce taxes accordingly. You can also get loans for intangible assets, use them as collateral, etc. I don't understand what you're saying about not producing software on credit-- of course you can produce it on credit like anything else. You can hire out a firm. Even if you hire a w2 dev you typically have 2 weeks to pay them for work done.

Yes, I should have been clearer that it's not that you can't make it on credit, but you can't use it as collateral. Firms usually buy capital, they don't build it with their own hands; this both means different financial instruments are available to them, and they can liquidate that capital.

(But as I said, my comment is kind of made up)

> Unless it's basically "shrink-wrapped" software, which largely doesn't exist anymore, software that is delivered by a company that provides that product online and continuously improves/monitors it (i.e. basically all SaaS companies), all software dev should be treated as OpEx, period.

You sure about that? If code written 3 years ago is still in production, that's not an operating expense, that's a capital expense. Kind of by definition. In a mature product, you'd expect expenses to shift to opex. But adding features and improvements are all classic capex. Just like any other industry.

> Just remove the rule altogether. A company paying a wage to a software engineer shouldn't be taxed any differently than any other kind of employee.

In most other industries, product development is capitalized and amortized over the life of the product for tax purposes. It requires lots of estimation and log-keeping (X% spent on develpoment, 100-X% spent on maintenance). Which is exactly what your employer is doing... taxing you just like every other kind of employee.

The change just removed the specific loophole for software.

Except that for software this is so much more complex than for any other type of products.

> This has a hugely negative impact for early-stage startups, contract research firms (i.e. SBIR companies), and independent software developers.

Yeah, but that doesn't make it unfair, no? The whole "develop it today, pay taxes on it later" effect SaaS used to have was just a loophole software enjoyed for a long time. Developing anything is investment, and tax code generally requires that to be amortized so you can't deduct it all year 1. Congress just closed the loophole for software.