Tax Provisions in the US House Proposed Reconciliation Legislation

The proposed tax provisions of President Biden’s Build Back Better Act continue to evolve as Congressional negotiations progress.  At the end of last week, the tax provisions in the bill changed dramatically and continued to change this week.

A number of provisions that were in prior legislative proposals are now “out” of the current version.  As a result, many of our prior recommendations are also “out” with the recent changes.

We will continue to monitor this tax legislation, but wanted to give you this update on some of the provisions that were “in” and “out” of yesterday’s draft of the bill under consideration by the House Rules Committee.

 What’s “Out”

  •  Individual ordinary income rate increases

  • Corporate income tax rate increase

  • Capital gains and dividend rate increases

  • Qualified Business Income (Section 199A 20% business income deduction) changes

  • Reduction of estate & gift tax exemption (Early sunset of increased estate and gift unified credit)

  • Changes to rules applicable to grantor trusts

  • Valuation rules for certain transfers of nonbusiness assets

  • Increase in limits on estate tax valuation for certain real property

  • The short-lived billionaire’s tax

  • Carried interest changes

 What’s “In”

  • Surcharge on high income individuals, estates and trusts

    • Additional 5% tax on taxpayer’s modified adjusted gross income in excess of $10 million (>$200,000 for estates and trusts)

    • Additional 3% of taxpayer’s modified adjusted gross income in excess of $25 million (>$500,000 for estates and trusts)

  • 15% corporate minimum tax on book income for C corporations with profits over $1 billion

  • Increased cap on deductions for state and local taxes: $72,500 max deduction allowed individuals for state and local taxes (currently $10,000 cap)

  • Extended and expanded Child Tax Credit and dependent care benefits

  • Expanded 3.8% Net Investment Income Tax for individuals, estates & trusts to apply to active business income from pass-through firms

  • Fully expense research and development costs (currently must be capitalized after 2021)

  • 1% excise tax on repurchase of corporate stock

 We hope this was helpful information.  If you have any questions about how some of these tax changes may affect you, or to discuss any year-end tax planning strategies, please contact us.

Alex Lehmann