Insights

Key Tax Provisions in the Build Back Better Act

The House of Representatives recently passed the Build Back Better Act (H.R. 5376) encompasses a wide range of budget and spending provisions. It is estimated that the bill will cost almost $1.7 trillion and add $367 billion to the federal deficit over 10 years.

The bill contains a wide variety of tax provisions, designed to provide incentives to taxpayers and to raise revenue to pay for the spending in the bill. H.R. 5376 now goes to the Senate for consideration; its fate there cannot be predicted.

Among the many tax provisions in the Build Back Better Act are the following:

SALT deduction cap
The bill would increase the Sec. 164(b) limitation on the deduction for state and local taxes from $10,000 to $72,500 ($36,250 for married taxpayers filing separately and for trusts and estates) but would extend the limitation through 2031.

15% minimum tax on profits of large corporations
The bill would impose a 15% minimum tax on the profits of corporations that report over $1 billion in profits to shareholders. Any corporation (other than an S corporation, regulated investment company, or real estate investment trust) that for any three-year period has average annual adjusted financial statement income over $1 billion and, in the case of corporations with foreign parents, has annual adjusted financial statement income in excess of $100 million, would pay a tax of 15% of its adjusted financial statement income for the year over the amount of its corporate AMT foreign tax credit.

1% surcharge on corporate stock buybacks
The bill would impose a tax equal to 1% of the fair market value of any stock of a corporation that the corporation repurchases during the year, effective for repurchases of stock after Dec. 31, 2021. The provision would apply to any domestic corporation the stock of which is traded on an established securities market.

Limitation on interest expense deduction
The bill would add a new Sec. 163(n) that limits the amount of net interest expense of certain domestic corporations (or foreign corporations engaged in a U.S. trade or business) that are members in an international financial reporting group. The provision limits the interest expense deduction to an “allowable percentage” of 110% of the domestic corporation’s net interest expense.

Small business stock and high-income taxpayers
The bill would amend Sec. 1202 to disallow the 75% and 100% exclusion of gain from the sale of stock if the taxpayer’s AGI is over $400,000 or if the taxpayer is a trust or estate.

Wash-sale rules
The bill would amend Sec. 1091 to make commodities, foreign currencies, and crypto assets subject to the wash-sale rules.

High-income surcharge
The bill would create a new Sec. 1A, imposing a surcharge (in addition to any other income tax imposed) on high-income individuals, estates, and trusts. The surcharge tax would equal the sum of 5% of the amount of the taxpayer’s AGI that exceeds $10 million ($5 million for married taxpayers filing separately; $200,000 for an estate or trust), plus 3% of the amount of the taxpayer’s AGI that exceeds $25 million ($12.5 million for married taxpayers filing separately; $500,000 for an estate or trust).

Next steps
In all likelihood, there are still significant negotiations to come before the bill reaches a vote in the Senate. Galleros Robinson is monitoring the situation in Washington, DC and, as it changes, we will keep you informed.

The information presented here should not be construed as legal, tax, accounting, or valuation advice. No one should act on such information without appropriate professional advice and after a thorough examination of the particular situation.