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Build Back Better Act—House Ways and Means Committee Tax Proposals Affecting High-Income Individuals

Updated: Sep 16, 2021

By: Juliya Ismailov

The U.S. House of Representatives’ Ways and Means Committee issued a section-by-section outline of the tax proposals contained in the multi-trillion dollar Build Back Better Act legislation for “soft infrastructure.” Below we summarize the proposals in Part 2, “Tax Increases for High-Income Individuals,” of Subtitle I - Responsibly Funding Our Priorities of the Act (with other Parts covered in a separate article).

  • Maximum Income Tax: Increase top income tax rate from 37% to 39.6% on individuals with adjusted gross income (AGI) over $450,000/married or $400,000/single (back down from $509,300/married or $452,700/single) (effective 12/31/21).

  • Capital Gains Rate: Increase (instead of eliminating completely) capital gains preferential tax rate to 25% from 20% for “certain high income individuals” (in President Biden’s proposal defined as individual or married taxpayers earning more than $1 million) (effective date 9/13/21).

  • Net Investment Income Tax: Expansion of the 3.8% tax (Net Investment Income Tax (NIIT), a/k/a “Obamacare tax”) to apply to passive income derived in the ordinary course of a trade or business, for taxpayers with taxable income over $400,000/individuals and $500,000/married, as well as trusts and estates. No NIIT will be applied to wages on which FICA is paid (effective 12/31/21).

  • Qualified Business Income Deduction: Instead of eliminating the 20% deduction on Qualified Business Income (QBI), the proposal is to amend Sec. 199A of the Tax Code to cap the allowable deduction at $500,000 for married and $400,000 for individual taxpayers ($10,000 for trust or estate) (effective 12/31/21).

  • Excess Business Losses of Non-Corporate Taxpayers: Permanently extend the current Section 461(l) disallowance of excess business losses for non-corporate taxpayers, with carryforward allowed to the next taxable year (effective 12/31/21).

  • Gift/Estate Tax Exemption: Allowing the temporary increase in the gift/estate unified credit or exemption enacted in 2017 to sunset and terminate, reverting to the 2010 level of $5 million per individual, indexed for inflation from 2011. As a result, the new exemption level (as adjusted for inflation) would be half of what it is currently at $11.7 million (as of 2021).

  • (New) Income Tax Surcharge: Introduction of a new surcharge of 3% on adjusted gross income (reduced by any deduction for investment interest) of $5 million for individual and married taxpayers (effective 12/31/21).

  • (New) Increase in Estate Tax Valuation Reduction: Amendment to Sec. 2032A to increase the maximum valuation reduction from $750,000 to $11.7 million, applicable to real property used in a family farm or other business and inherited by a “qualified heir” (surviving spouse, a minor under age 21, a disabled individual or a student). The reduction allows valuation for estate tax purposes to be based on the property’s actual use rather than fair market value.

  • (New) Inclusion of “Grantor Trust” Assets in Estate: A new provision would cause assets of certain trusts over which the grantor is deemed to have control for income tax purposes, but that are currently excludible for estate tax purposes (“grantor trusts”), to now be includible in the decedent’s estate for estate tax purposes. Another provision would treat sales between a grantor and his/her “grantor trust” as a third-party sale generating taxable income (currently not the case). (The new provisions would apply prospectively to future trusts and transfers.)

  • (New) Elimination of Discounts on Transfer of Nonbusiness Assets: This provision provides that, for transfer tax purposes, nonbusiness assets cannot be discounted. Nonbusiness assets would be defined as passive investments, as opposed to active conduct of a trade or business. Exceptions would be provided for assets used in hedging transactions or as working capital of a business (effective after the date of enactment).


It is interesting to note that the House proposals do not include the following previously floated provisions:

  • deemed sale and income tax recognition (“mark-to-market”) upon transfer of assets to a trust or estate (as opposed to currently deferred income recognition through carryover basis for trusts, and stepped-up basis at death);

  • increased estate tax rate;

  • repeal of Section 1031 tax-free like-kind of exchanges of real property;

  • capping itemized deductions at 28% of AGI;

  • eliminating $10,000 limit on the state and local taxes (SALT) deduction.


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