As 2021 is winding down, we wanted to keep you informed of the progress of the Build Back Better Act and how this may impact you. The House made some changes to the bill, which is now before the Senate, and we wanted to clarify what has been removed and call out items that may impact our clients.

The following items were removed from the Build Back Better Act and are no longer part of the bill.

• Increase top federal income tax rate to 39.6% for high-income earners ($400k single; $450k joint)
• Increase top capital gains tax rate to 25% for high-income earners ($400k single; $450k joint)
• Raise corporate tax rate to 26.5%
• Reduce estate/gift/GST Exemption to $5.5 million
• Certain grantor trusts such as intentionally defective grantor trusts (IDGTs) or spousal lifetime access trusts (SLATs) will lose their favorable tax status. Any sale to these trusts would become taxable, unlike current rules.

The next set of items remains as part of the bill waiting for Senate approval.

• Increase the SALT Cap to $80k effective 2021. Currently, the proposal would have unlimited SALT Cap for (this would be fantastic)
• Prohibit Back Door Roth conversions effective 1/1/2022
• Prohibit all Roth conversions for high-income earners effective 2030 (looks like looking for a tax revenue fire sale)
• Prohibit IRA contributions if balances exceed $10m effective 2029
  – Required to distribute 50% of the excess over $10m (IRA and Roth combined)
  – Required to distribute 100% of the excess over $20m (excess distributed from Roth first)
• Expand 3.8% NIIT to include income from business (Taxable income over $400k single $500k joint) effective 2022
• 5% surcharge on MAGI over $10 million; only $200k for Trusts and Estates effective 2022
• Additional 3% on MAGI over $25 million; only $500k Trusts and Estates effective 2022

Image Credits: Fernando Ramirez @texassignal.com