“Build Back Better Act” Proposed Tax Changes + How Will You Be Affected?
September 21, 2021
The House Ways and Means Committee has released important tentative tax changes as part of the proposed “Build Back Better Act,” which includes a $3.5 trillion infrastructure plan. Sections of the bill are still under debate, and the provisions may change as the bill nears a vote. The House may vote as early as September 27th. Below is a list of the major changes we are monitoring, which would be effective for tax years beginning after 12/31/2021 unless otherwise noted.
- Top individual tax rate of 39.6% when taxable income is over $400,000 for a single taxpayer ($450,000 if married).
- New 3% surtax on individuals with a modified adjusted gross income over $2.5 million for a single taxpayer ($5 million if married).
- Expansion of the 3.8% net investment income tax (NIIT) to net investment income derived in the ordinary course of business for single taxpayers with a taxable income over $400,000 ($500,000 if married).
- Top capital gain rate changed to 25%. Unlike previous proposals, the capital gain rate change would not be retroactive but would be effective as of the enactment date of the bill.
- Top tax rate for C-Corporations would be changed to 26.5%. A graduated system would apply to C-Corporations with under $10 million in income. The first $400,000 would be subject to tax at 18%, the next $4.6 million would be taxed at 21%, and amounts over $5 million would be taxed at 26.5%.
- Qualified business income deduction (QBI, 199A) would be limited to $400,000 for a single taxpayer ($500,000 if married). However, the 199A(g) Cooperative DPAD deduction does not seem to be impacted.
- New distribution requirements would apply to single taxpayers with over $400,000 taxable income ($450,000 if married) with individual retirement accounts (IRAs) worth over $10 million.
- The estate and gift exemption amounts would drop early to $5 million adjusted for inflation ($5.85 million), down from $11.7 million for 2021. The “step-up in basis” would be preserved, and the tax rate would stay at 40%.
- A common estate planning technique using sales to Intentionally Defective Grantor Trusts (IDGTs) and Spousal Lifetime Access Trusts (SLATs) would now be taxable for income tax purposes.
- The following items are not currently part of the bill: adjustments to 1031 like kind exchanges, adjustment to the $10,000 state income tax itemized deduction limitation, and additional self-employment tax imposed on earnings over $400,000.
If you have any questions, please contact us.
Last updated: 9/20/21
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