The U.S. House of Representatives passed President Biden’s priority social legislation called the Build Back Better Act (“BBBA”) on 19 November 2021. The bill is now headed to the U.S. Senate where Majority Leader Schumer plans to vote on it by Christmas. As currently structured, the BBBA includes the following summarized tax changes. Please note these tax provisions are subject to change in the U.S. Senate or in a potential conference committee.
Individuals
- Child tax credit changes enacted with the American Rescue Plan in March 2021 are extended through 2022
- Child tax credit refundability is extended beyond 2022
- Increase earnings and phaseout amounts for the Earned Income Credit
- SALT deduction cap raised from $10,000 to $80,000 through 2031
- Expanded health insurance premium tax credit – including certain low-income employees who are offered employer-provided coverage
- Disallowance of the Section 1202 exclusion for the sale of stock for higher income taxpayers, estate, and trusts
- Commodities, foreign currencies, and cryptoassets are subject to wash-sale rules
- Applies the net investment income tax to business income for higher income taxpayers
- Makes Section 461 limit on excess losses permanent
- High-income surcharge of 5% for AGI over $10 million and 8% for AGI over $25 million with different limits for estates and trusts
- New limits are placed on Roth and traditional IRA contributions for higher income taxpayers
- Distributions are required for higher income taxpayers with retirement accounts valued at $10 million or more after 31 December 2029
- Roth conversions are eliminated for higher income taxpayers
- Makes changes to the low-income housing credit administered by the states
Businesses
- 15% minimum tax on financial statement income of large corporations (over $1 billion in profits)
- 1% surcharge on corporate stock buybacks
- New limits on net interest expense deductions for domestic corporations in an international group
- Adjusts FDII and GILTI deduction percentages to yield effective rates of 15.8% and 15%, respectively
- Applies the foreign tax credit limitation on a country-by-country basis
- Amends Section 59A to increase the applicable percentage to 18% by 2025
Green Incentives
- Section 48 renewable energy incentives are enhanced
- New nuclear power production and clean hydrogen production credits
- Extends and modifies Section 25C nonbusiness energy property credits
- Extends and modifies the Section 25D credit for residential energy-efficient property and adds battery storage technology expenditures to the credit
- Extends and modifies the Section 45L credit for energy-efficient homes
- Extends and modifies the Section 48C qualified advanced energy property credit
- New credits for other clean energy technologies
- New emissions-based incentives available to electricity generating facilities
- New tax credit to produce clean fuels
- Refundable income tax credit for plug-in electric vehicles of up to $8,500 subject to phaseout for higher income taxpayers
- Credit for part of the purchase price of commercial electric (30%) or hybrid (15%) vehicles
- Extends fuel cell and alternative fuel vehicle credits
- Restores and enhances qualified bicycle commuting benefits
Finally, the bill allows the IRS to impose penalties without supervisory approval and increases agency funding for enforcement, technology, and customer service. This is a summary of an article issued by the AICPA on 19 November 2021. Please refer to this article or your tax advisor for more information on how these provisions may apply to you.