Further revised legislative text for the Build Back Better Act (Bill) was released on November 3rd, 2021. This version brought back several sections removed from the version of the Bill released on October 28, 2021, modified several sections that remain, and introduced for the first time possible changes to the state and local tax cap.
Below is a summary of some of the tax provisions impacted by the revised Bill. A recap of the first revised version of the Bill is provided in this Tax Alert.
State and local tax (SALT) cap: This version introduced for the first time possible changes to the state and local tax cap.
State and local tax (SALT) cap. This provision would extend the sunset of the cap from 2025 to 2031. In addition, it would raise the cap from $10,000 ($5,000 for married individuals filing married filing separately) to $72,500 ($36,250 for married individuals filing separately, estates, and trusts). This change would be effective for tax years beginning after December 31, 2020.
Contribution limits on individual retirement plans. High-income individuals with certain retirement plan account balances that in total are more than $10,000,000 generally would no longer be able to make additions to individual retirement plans. High-income individuals would include individuals with modified adjusted gross income over certain thresholds: married filing joint or surviving spouse - $450,000; head of household - $425,000; all other individuals - $400,000. This would be a yearly determination starting with tax years beginning after December 31, 2028.
Increase to required minimum distributions (RMD). Individuals subject to the contribution limits above may also face an increase in RMDs that would generally start at 50% of the amount of the combined account balances over the limit. If the combined balance is more than $20,000,000 the individual would be subject to additional increased RMD requirements specific to Roth IRAs and designated Roth accounts. These changes would be effective for tax years beginning after December 31, 2028.
Roth conversions and rollovers. For tax years beginning after December 31, 2021, after-tax contributions from IRAs or employer plans would no longer be able to be converted to a Roth IRA. This change would close the door on so-called "backdoor" Roth conversions. In addition, high-income individuals would only be able to rollover amounts to a Roth IRA if the rollover contribution is from another Roth IRA or Roth account for tax years beginning after December 31, 2031.
What Got Changed
Wash sales. The application of the wash sale rules to related parties would be further expanded by the revisions in this version of the Bill to also include not only the taxpayer's spouse, any dependent of the taxpayer, and IRAs and Archer MSAs but also include any individual that has a relationship with the taxpayer that is described within Section 267(b) if the taxpayer is an individual. These changes would be effective for all sales, dispositions, and terminations occurring after December 31, 2021.
Credits. Changes continue to be made to the various credit provisions and incentives included for housing, green energy, and electrical vehicles.