President Biden’s Build Back Better Act Passes in the House

November 24, 2021

The House of Representatives passed President Joe Biden’s Build Back Better Act (the “House Bill”) on November 19, 2021. The House Bill is currently being considered by the Senate and will likely be subject to further change. The $1.75 trillion social spending package excludes all of the federal estate and gift tax law changes set forth in the Sept. 13 proposal. Therefore, the estate and gift tax lifetime exemption is projected to increase on Jan. 1, 2022 to $12,060,000 (currently $11,700,000) per individual. Pursuant to the provisions of the Tax Cuts and Jobs Act of 2017, the exemption amount is scheduled to be reduced to approximately $6 million per individual on Jan. 1, 2026. The annual gift tax exclusion will increase to $16,000 per donee effective Jan. 1, 2022.

The House Bill proposes numerous notable changes to the current tax regime, beginning Jan. 1, 2022 (unless otherwise noted), including, but not limited to:

  • Imposing a 5% surtax on modified adjusted gross income (“MAGI”)[1] in excess of $10 million up to $25 million and an additional 3% surtax on MAGI above $25 million.
  • Expanding the 3.8% surtax on net investment income (“NIIT”), which currently includes, among other things, taxable interest, dividends, gains, passive rents and other passive income, annuities, and royalties to also include income derived in the ordinary course of any trade or business for individuals and joint filers with MAGI greater than $400,000 or $500,000, respectively.
  • Permanently disallowing business owners to deduct losses exceeding $250,000 ($500,000 for joint filers) and limiting deductions for excess losses to the tax year immediately following the year of the loss.
  • Increasing the $10,000 cap on the state and local income tax (“SALT”) deduction to $80,000 through 2030. In 2031, the cap would return to $10,000.
  • Effective for tax years beginning after Dec. 31, 2028, prohibiting further contributions to a Roth or traditional IRA for a tax year if the contributions would cause the total value of an individual’s IRA and defined contribution retirement accounts, as of the end of the prior tax year, to exceed (or further exceed) $10 million. The limitation would apply to individuals, heads of household, and joint filers with MAGI greater than $400,000, $425,000, or $450,000, respectively.
  • Effective for tax years beginning after Dec. 31, 2031, eliminating Roth conversions for both IRAs and employer-sponsored plans for individuals, heads of household, and joint filers with MAGI greater than $400,000, $425,000, or $450,000, respectively.
  • Imposing a 15% minimum tax on corporations with over $1 billion in financial statement profits.
  • Imposing a 1% tax on corporate stock buybacks by publicly traded U.S. corporations.

[1] Modified AGI is adjusted gross income reduced by any deduction allowed for investment interest. 

For Further Information:

If you have any questions about the provisions in the House Bill, contact John W. Schmehl, John R. Latourette, Kristen L. Behrens, Matthew I. Whitehorn, Lisa M. Nentwig, Stephanie Searles Vogel, Jamie D. Valentine, Sarah Gremminger, or Isabela Alvarez

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