View looking up at three cranes at a large construction site

On the evening of October 28, 2021, revised legislative text for the Build Back Better Act (Bill) was issued to align the legislation with the framework announced by the White House earlier in the day. While the Bill may still undergo changes, this revised version reflects the most recently negotiated budget reconciliation package at the time.

In addition to spending and program changes, the revised Bill includes changes to a number of tax provisions. Below is a brief recap of some of the provisions that are now out, as well as provisions currently included. A recap of the original bill can be found in this previous Tax Alert.


Increase in ordinary tax rates of individuals. The original bill would have increased the top ordinary rate for individuals from 37% to 39.6%.

Increase in capital gains rates. The original provision would have changed the highest capital gains rate from 20% to 25% and would have been effective September 13, 2021.

Change in corporate tax rate. A graduated corporate rate structure had been proposed with a rate of 18% on the first $400,000 of taxable income, 21% on additional taxable income up to $5 million and 26.5% above $5 million. The benefit of the lower rate brackets would have been recaptured beginning at $10 million of taxable income.

Limitation on section 199A deduction. Proposed a hard cap on the amount of section 199A deduction allowed.

Five-year limitation on carryforward of business interest expense disallowed under section 163(j). Under this provision, taxpayers who were unable to utilize previously disallowed excess business interest expense within the following 5 years would have lost the potential to benefit from the deduction.

Reduction of estate and gift tax exemption. Set the exemption amount back to the pre-Tax Cuts and Jobs Act (TCJA) level of $5 million with indexing for inflation. The current exemption level is still projected to sunset after 2025 under the TCJA. Changes to grantor trusts and valuations were also removed from the Bill.

Retroactive changes related to qualified conservation easement deductions. Retroactively revised the definition of a qualified conservation easement deduction potentially disallowing deductions claimed by taxpayers in prior years. Would have also added a 40% penalty with no reasonable cause abatement and extended certain statute periods for conservation easement deductions.


Corporate Minimum Tax. Enacts a corporate minimum tax targeted at corporations reporting profits greater than $1B. The corporate minimum tax would be 15% of adjusted financial statement income less any corporate alternative minimum foreign tax credit. Applicable corporations will have an additional tax liability to the extent this corporate minimum tax exceeds the sum of their regular and base erosion taxes.

Surtax on corporate stock buybacks. Implements a 1% tax on stock repurchases by domestic corporations whose stocks are traded on an established securities exchange.

New section 163(n) interest expense limitation for members of foreign reporting groups. Subjects members of a foreign reporting group to potential further limitations on their deductions for business interest expense.

Change to apply section 163(j) business interest expense limitation for flow-through entities. This provision would change the application of the section 163(j) limitations on business interest expense so as to apply the limitation at the partner or shareholder level rather than at the entity level.

Expansion of net investment income tax (NIIT). This provision would apply the NIIT to active trade or business activities of taxpayers whose modified adjusted gross income exceeds the threshold level based upon filing status. These taxpayers would pay the greater of NIIT computed under the regular rules or NIIT computed with inclusion of the additional activities. 

Change to limit section 1202 exclusion for sale of qualified small business stock. Limits the otherwise allowable gain exclusion for sale of section 1202 stock to 50% of the gain for taxpayers with adjusted gross income of $400,000 or more. Trusts and estates are also subject to this limitation irrespective of income levels. This provision continues to be proposed with an effective date of September 13, 2021.

Changes related to losses for worthless assets. Makes changes with respect to recognition date for worthless assets, establishes abandonment as an identifiable event of worthlessness and would allow sale treatment for worthless partnership interests. Amends section §267 to defer recognition of losses on stock or securities upon liquidation of a control group member in specified controlled group liquidations.

Expansion of assets subject to the wash sale rules. Would apply the wash sales rules when substantially identical assets are acquired by certain related parties and expands the definition of specified assets to encompass any digital representation of value which is recorded on a cryptographically secured distributed ledger or similar technology as identified by the Secretary. Basis adjustments would only be made in connection with wash sales if the assets are acquired by the taxpayer or the spouse of the taxpayer but not by a related party.

Excess business loss limitations. Makes the excess business loss limitations permanent and alters the carryforward provision to subject disallowed losses to the business loss limitations in each successive year rather than being treated as net operating loss carryforwards.

Push-back of requirement to capitalize certain R & D expenditures. Pushes back the requirement to capitalize certain section 174 research and experimental expenditures so that it applies to expenses paid or incurred in taxable years beginning after December 31, 2025.

Credits. Credit provisions and incentives are retained for housing, green energy and electric vehicles.

International. International tax changes to GILTI, FDII and foreign tax credits continue to be included in the revised Bill. A more in-depth explanation of the original international tax proposals found in the Build Back Better Act can be found here.

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