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Build Back Better Act

The Build Back Better Act is expected to pass through the House this week, following the passage of the recent Infrastructure Bill. The bill will still need to be passed through the Senate and then signed into law by the President. While there are a few tax changes within the bill, there should be no substantial changes to how you plan for 2022 given the most recent proposal released on October 28, 2021. The Build Back Better Act aims to offset the cost of the bill through an increase in taxes on the wealthy. The bill proposes to modify the 3.8% Net Investment Income Tax to apply to taxpayers whose modified adjusted gross income exceeds $500,000 for married individuals filing jointly and surviving spouses, $250,000 for married individuals filing separately, $12,500 for estates and trusts, and $400,000 for all other tax filers. The proposal would be effective for taxable years beginning after December 31, 2021. The Act also aims to change how cryptocurrency transactions are taxed by including commodities, currencies, and digital assets such as crypto in the wash sale rules, which will prevent traders of crypto from claiming tax losses while retaining an interest in the loss asset.

The Build Back Better Act contains legislation to expand and continue the Child Tax Credit increase in 2021 through 2022. Eligible families would continue to receive $300 monthly payments for children under 6 and $250 per month for children ages 6 to 17. The increased dependent care credit will not be returning for 2022 and will revert to a max credit of $600 per child for 2022, instead, the bill provides funding for states to either provide free or subsidized childcare for low-income workers.

In an effort to address climate change, the bill contains changes to the Nonbusiness Energy Property Credit and introduces new refundable credits for qualified electric vehicles. If the bill were to pass, the percentage for installing qualified energy-efficient improvements will increase to 30%, up from the previous 10%, and the previous lifetime cap of $500 would be replaced with an annual credit limit of $1,200. Credits for qualified electric vehicles start with a base amount of $4,000, plus an additional $3,500 for vehicles place into service before January 1, 2027, provided they have a minimum of 40 KW hours and gasoline tank capacity not greater than 2.5 gallons, and for vehicles with a battery capacity of no less than 50 KW hours, thereafter. Additionally, the credit would be increased by $4,500 and $500 if the final assembly and battery are produced in the USA, respectively. Used electric vehicles would qualify for a reduced credit capped at $4,000 or 50% of the cost of the vehicle.

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