The Build Back Better Act – Update

This information is current as of Sunday, November 21, 2021.

On Friday, November 19, 2021, after the Congressional Budget Office (CBO) released its cost estimate for the bill, the House of Representatives passed H.R.5376, a $1.9 trillion reconciliation bill “Build Back Better Act” (BBBA).

Since the House’s version of this bill is different from that originally passed by the Senate, it has now been sent to the Senate for their approval. Experts believe that the Senate may not approve this bill, as is, and may make changes. If so, then the Senate’s version will be sent back to the House for their consideration and final vote. So, the fate of BBBA, currently being considered by the Senate, is uncertain.

Here are some highlights (not an exhaustive list) of the various tax provisions included in this bill as passed by the House on November 19, 2021.

Net Investment Income Tax (NIIT):

The NIIT would apply to net investment income derived in the ordinary course of a trade or business for taxpayers with taxable income over $250,000 / $400,000 / $500,000, depending on their filing status.

Excess Business Losses (EBL):

The §461 limitation on EBL of noncorporate taxpayers would be made permanent.

Retirement Plans:

  • Dependent upon income exceeding certain thresholds for their filing status, if the total value of retirement accounts of a taxpayer exceed $10 million, further contributions to a Roth or Traditional IRA would be prohibited for tax years beginning after December 31, 2028.
  • The “back-door” Roth conversion would be prohibited after December 31, 2021

 

Child Tax Credit (CTC):

  • The expanded CTC, including the advance payment requirement of CTC, would be extended through 2022.
  • Refundability of CTC would be extended beyond 2022

 

Earned Income Tax Credit (EITC):

The expanded EITC, would be extended through 2022.

State and Local Tax (SALT) Deduction:

The limitation on the SALT deduction would be raised from $10,000 to $80,000 ($40,000 for married filing separately, trusts or estates) through 2031.

Premium Tax Credit (PTC):

  • The amount of premium assistance would increase.
  • PTC to certain taxpayers whose household income exceeds 400% of the poverty line, would be extended through 2025.

 

Small Business Stock (SBS):

  • The 75% and 100% exclusion of gain from sale of SBS would be disallowed for taxpayers with Adjusted Gross Income (AGI) over $400,000. This would limit gains eligible for the exclusion to 50% for such taxpayers.
  • Trusts and estates, regardless of income level, would only qualify for a 50% exclusion.
  • Effective for sales and exchanges after September 13, 2021, subject to a binding contract exception.

 

Wash-sale:

Crypto assets, foreign currencies and commodities would be subject to wash-sale rules.

High Income Surcharge:

A surcharge of 5% of AGI in excess of $10 million ($5 M for married filing separately, $200 K for a trust or estate), plus 3% of AGI in excess of $25 million ($12.5 M for married filing separately, $500 K for a trust or estate) would be imposed under the new §1A, in addition to any other income tax

Minimum Corporate Tax:

A minimum tax of 15% would be imposed on the profits of corporations that report over $1 billion in profits.

Corporate Stock Buybacks:

A tax at the rate of 1% of the fair market value of its stock repurchased by a corporation, after December 31, 2021, would be imposed.

Corporate Interest Expense Deduction:

The interest expense deduction of certain domestic corporations would be limited under a new §163(n).

There are several other tax related provisions impacting the foreign-derived intangible income (FDII) deduction, global intangible low-taxed income (GILTI) deduction, foreign tax credit limitation, base-erosion and anti-abuse tax, as well as green energy incentives and others not listed here. There are several nontax provisions included such as – paid leave benefits for caregivers.

For a complete list of the provisions in the Bill, please visit H.R.5376 – 117th Congress (2021-2022): Build Back Better Act | Congress.gov | Library of Congress

If you have any questions, please contact your HM&M advisor.

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