2021 brought a multitude of changes affecting taxpayers and with additional legislation, known as the Build Back Better Act, currently being debated in Congress, it looks like 2022 will be no different. The House of Representatives passed the bill on November 19, but changes could still be made if it is to pass the Senate. Below is a summary of tax items included in the bill that passed the House.
Child Tax Credit – Under the proposed legislation, the changes to the child tax credit in the American Rescue Plan Act (ARPA) for 2021 would be extended for one year. This would include the increase in amounts (up to $3,600 for children under the age of six and $3,000 for ages six through 17). It would also extend the monthly advance payments of the credits for the additional year. ARPA also made the credit refundable for tax year 2021. The Build Back Better Act would make the refundability permanent.
SALT Deduction – The bill would increase the cap on the itemized deduction for state and local taxes from $10,000 to $80,000 ($40,000 for married filing separately and for trusts and estates). This bill would also extend the cap through the 2031 tax year.
Premium Tax Credit – The bill makes a few changes to the premium tax credit. First, it would increase the amounts for premium assistance in Section 36B through tax year 2025. Second, it would also allow the premium tax credit to certain taxpayers whose household income exceeds 400% of the poverty line through 2025. Third, the bill would exclude a portion of lump-sum Social Security benefit payments when determining household income and exclude the first $3,500 of income of dependents who have not reached the age of 24. Fourth, the bill would allow certain low-income employees who are offered employer-provided health insurance to claim the credit.
FDII and GILTI – The bill makes a few changes to these two items. The bill would reduce the applicable percentage in Section 250(a) for the foreign-derived intangible income (FDII) deduction from 37.5% to 24.8% and the applicable percentage for the global intangible low-taxed income (GILTI) deduction from 50% TO 28.5%, resulting in an effective FDII rate of 15.8% and effective GILTI rate of 15%. The FDII deduction would also be used when determining a net operating loss deduction.
Small Business Stock – The 75% and 100% exclusion rate for gain on sale of stock under Section 1202 would be disallowed for taxpayers with AGI over $400,000 or if the taxpayer is a trust or estate.
Net Investment Income Tax – Under the bill, the tax on net investment income would include investment income derived in the ordinary course of a trade or business for taxpayers with taxable income over $400,000 (single filers), $500,000 (joint returns or surviving spouses) or $250,000 (married filing separately).
Excess Business Losses – The bill would make the Section 461 limitation on excess business losses of noncorporate taxpayers permanent.
Electric Vehicle Tax Credits – The bill would provide a refundable tax credit of up to $8,500 for new qualified plug-in electric drive motor vehicles. The credit would be available on purchases with a cost of up to $80,000 for vans, SUVs, and trucks and $55,000 for other vehicles. There would also be a credit available of up to $7,500 for two- or three-wheeled plug-in electric vehicles. The credit would be phased out for taxpayers with AGI over $500,000 for joint returns or $250,000 for single taxpayers. The bill would also provide a credit for qualified commercial electric vehicles placed in service by a taxpayer. The credit would equal up to 30% of the basis of a fully electric vehicle or 15% of the basis of a hybrid vehicle.
Again, we must stress that the Build Back Better Act could see major changes in the Senate. Please follow us on social media to receive the latest guidance as it becomes available. If you have any questions, please reach out to your personal Sciarabba Walker contact or email us at email@example.com.
By Kevin Bruot, CPA