What’s In Biden’s Tax Bill?

At the end of October 2021, the Democrat’s updated budget reconciliation bill (aka Build Back Better plan) was released and is expected to be voted on soon.

The bill looks very different than September’s version and doesn’t include many of the tax increases real estate investors were fearful about.

Today’s article discusses what is in the bill and, more importantly, what is not in the bill.

What’s in the bill?

The bill is expansive and there are many

Corporate Alternative Minimum Tax

The corporate alternative minimum tax (AMT) proposal would impose a 15 percent minimum tax on adjusted financial statement income for corporations with such income in excess of $1 billion. Under the proposal, an applicable corporation’s minimum tax would be equal to the amount by which the tentative minimum tax exceeds the corporation’s regular tax for the year.

Modification of Wash Sale Rules

This section includes commodities, currencies, and digital assets in the wash sale rule, an anti-abuse rule previously applicable to stock and other securities. The wash sale rule in section 1091 prevents taxpayers from claiming tax losses while retaining an interest in the loss asset. The amendments made by this section apply to taxable years beginning after December 31, 2021.

Application of Net Investment Income Tax to Trade or Business Income of High Income Individuals

This provision amends section 1411 to expand the net investment income tax to cover net investment income derived in the ordinary course of a trade or business for taxpayers with greater than $400,000 in taxable income (single filer) or $500,000 (joint filer), as well as for trusts and estates. The provision clarifies that this tax is not assessed on wages on which FICA is already imposed. The amendments made by this section apply to taxable years beginning after December 31, 2021. Note: this will reduce the value of operating your business out of an S-Corporation… if you are currently running an S-Corporation, get with your CPA (or explore our services) before the end of the year.

Limitation on Excess Business Losses of Noncorporate Taxpayers

This provision amends section 461(l) to permanently disallow excess business losses (i.e., net business deductions in excess of business income) for non-corporate taxpayers. The provision allows taxpayers whose losses are disallowed to carry those losses forward to the next succeeding taxable year. The amendments made by this section apply to taxable years beginning after December 31, 2021. Note: this provision simply makes permanent section 461(l) which allows taxpayers to claim $250k of business losses ($500k if married filing joint) that are in excess of business income.

Surcharge on High-Income Individuals, Estates, and Trusts

This provision adds section 1A, which imposes a tax equal to 5% of a taxpayer’s modified adjusted gross income in excess of $10,000,000 (or in excess of $20,000,000 for a married individual filing separately), and an additional tax of 3% of a taxpayer’s modified adjusted gross income in excess of $25,000,000. For this purpose, modified adjusted gross income means adjusted gross income reduced by any deduction allowed for investment interest (as defined in section 163(d)). The amendments made by this section apply to taxable years beginning after December 31, 2021.

Funding the Internal Revenue Service

This provision appropriates funding for the IRS as follows:

• $1,931,500,000 for taxpayer services,
• $44,887,500,000 for enforcement,
• $27,376,300,000 for operations support, and
• $4,750,700,000 for business systems modernization.

The provision allows the IRS to utilize direct hire authority to recruit and appoint personnel with such funds. The Commissioner of the IRS is required to submit a plan to Congress detailing how such funds will be spent, and submit periodic reports thereafter detailing the progress of the plan.

What’s Not in Biden’s Plan?

Here is a list of provisions that were previously proposed to be in the budget reconciliation bill, or were in an earlier version of the bill, that are not in the bill released last week:

• 1031 exchange limitations
• Long-term capital gain tax rate increases
• Stepped-up basis limitations
• Corporate tax rate increases
• Individual tax rate increases
• SDIRA disallowance and foreced distribution of syndication investments
• Retroactive disallowance of syndicated conservation easements
• Billionaire wealth tax on unrealized gains
• Stringent bank reporting requirements
• Backdoor and Mega Backdoor Roth IRA conversions

Takeaways

It’s clear that the social spending package was too much for some Democratic Congressmen/women to stomach which is why you are seeing lavish proposals that ultimately didn’t make it into the bill.

The bill has not yet passed and we’ve already seen reports that some Democrats are still pushing back on last week’s bill. The provisions in this bill may continue to change over the coming weeks as a vote nears.

We’ll keep you updated, thanks for being a subcriber!