Build Back Better negotiations continue

Congressional Democrats continue to inch closer to their goal of passing President Biden’s Build Back Better agenda into law. On October 28, the Administration released a new framework that Democratic leaders hoped would unite the wings of the party, but disagreements over some of the key programs remain.

The framework, however, does drop many of the tax increases that had been proposed by the President or included in earlier versions of the reconciliation bill, many which would have impacted commercial real estate. While these developments are positive, the negotiations remain fluid.  Additional changes were released November 3 and more may yet emerge.  

Currently Out

• No changes to the taxation of the promote/carried interest.
• No limitation on section 1031 like-kind exchanges.
• No restriction on the 20% pass-through deduction (sec. 199A).
• No repeal of stepped-up basis of assets at death.
• No changes to grantor trusts.
• No increases to tax rates on income or capital gains, BUT new surtaxes on high income individuals (see below).

Currently In

• 3.8% Net Investment Income Tax (NIIT). The NIIT would be expanded to apply to all income derived from a trade or business, including rent, for taxpayers with taxable incomes over $400K (single filers) or $500K (joint filers), or $200K for trusts and estates. 
• Surcharge on High-Income Individuals. A 5% surtax would be applied on individual taxpayers with modified Adjusted Gross Income (AGI) over $10 million.  An additional 3% surtax would be applied on modified AGI over $25 million.  For purposes of the surcharge modified AGI means the gross income reduced by any deduction for investment interest.  This provision would be applicable for taxable years beginning after December 31, 2021.
• Make Active Pass-Through Loss Limitation Permanent. Currently, losses from a business exceeding $250K (single) or $500K (married filing jointly) cannot offset portfolio income or W-2 wages in the year incurred and are effectively suspended for 1 year.  The provision would permanently disallow excess losses from being applied to portfolio or wage income.  This provision is applicable for taxable years beginning after December 31, 2021.
• Modifications to Treatment of Certain Losses. This change would require a loss in a worthless partnership interest to be treated as a capital loss and deferred until the property is sold to a third party.

• State & Local Tax Deduction. The SALT deduction cap would be increased from $10,000 to $72,500 and extended through 2031.

• Deduction for Energy-Efficient Commercial Buildings (section 179D). The deduction would be extended through 2031. The requirement for greater energy efficiency would be lowered from 50% to 25%, among other changes. 

• Public EV Charging Station Credit. The alternative fuel vehicle refueling property credit would be extended through 2031. The credit would also be increased beginning in January 2022.

Legislative text of the 11/3 version of the Build Back Better Act can be found here and a summary here.

If you have any questions, please contact Phillips Hinch at gpp@icsc.com or (202) 626-1402.