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Pass Through Tax Break Limits Extended, "Uber-Wealthy" Hit Hardest

by
Rebekah Barton
on
8/9/2022
Pass Through Tax Break Limits Extended, "Uber-Wealthy" Hit Hardest

In a change to the original version of the Inflation Reduction Act of 2022, pass through tax break limits have been extended for another two years in a move that majorly impacts the "uber-wealthy," according to a report by CNBC.

High net-worth real estate owners -- who may like to jet from place to place on a whim -- will be most affected by this extension, as explained to CNBC by financial expert Jeffrey Levine:

“It’s a really big deal for uber-wealthy people with a ton of real estate, and then the occasional business that loses a ton of money every year,” said Levine, who is also chief planning officer at Buckingham Wealth Partners.

In order to full understand what this Inflation Reduction Act provision means for both real estate scions and entrepreneurs alike, it is crucial to first understand its history.

The Institute on Taxation and Economic Policy (ITEP) explains:

Under rules enacted as part of the [Republican] Tax Cuts and Jobs Act (TCJA), when business owners report losses, they cannot use these losses to offset more than $250,000 of their non-business income (or $500,000 of non-business income in the case of married couples). This prevents high-income taxpayers from deducting business losses that exist on paper only to reduce the other income they report to the IRS. The limit on pass-through losses was set to expire with most of the other TCJA personal income tax changes after 2025. The CARES Act controversially suspended it for 2020 and retroactively for 2018 and 2019. The American Rescue Plan Act extended it for one year, through 2026. The IRA would extend it for another two years.

It is worth noting that the 2022 caps were raised to $270,000 and $540,000, respectively, due to inflation. 

Per the Joint Committee on Taxation, the one-year extension in the American Rescue Plan raised an estimated $31 billion.

The additional extension proposed in the IRA -- which was approved by Senate Democrats against unanimous Republican opposition on August 7 -- would likely have a similar year-to-year impact. 

It is, however, important to note that if Congress doesn't extend the pass through limits a third time, the losses may be deferred to future tax years. 

“The losses almost always get claimed later,” Steve Rosenthal, a senior fellow at the Urban-Brookings Tax Policy Center, told CNBC. 

What do you think about the pass through tax limit extension?

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Rebekah Barton

Rebekah Barton

Rebekah's search engine optimization career began completely by accident as a college student. Over the course of her career so far, she has "grown up" with the SEO industry, from writing content while juggling classes to managing her own teams of writers and overseeing SEO strategy in subsequent roles. She is excited to bring her passion for high-quality content to CountingWorks, Inc.

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