Some Surprises In the Reconciliation Bill

A few days ago, the latest text of the proposed reconciliation bill, the Build Back Better Act, was published. Surprisingly, this version eliminates many of the proposed tax law changes that would have completely upended estate planning as we have known it for decades. Specifically, the following estate tax provisions are noticeably absent:

1. the significant reduction in the estate tax exemption amount;

2. the limitations on the use of grantor trusts;

3. the elimination of the basis step-up for property at death;

4. the elimination of valuation discounts for interests in nonbusiness entities.

The bill does include a limitation on the exclusion of gain from the sale of Internal Revenue Code Section 1202 qualified small business stock (QSBS) to 50 percent of the gain realized in the case of taxpayers with adjusted gross income of at least $400,000; the remaining tax would be subject to tax as long-term capital gain (effective retroactively, for sales after September 13, 2021). The bill also provides for a surtax on high-income earners and an expansion of the 3.8 percent net investment income tax (NIIT).

As the legislative process and negotiations continue to proceed, we remain committed to keeping our clients and colleagues updated.