United States

Individual - Significant developments

Last reviewed - 07 February 2024

President Joe Biden, who took office on 20 January 2021, proposed significant changes to United States (US) tax law as part of his budget submission to the US Congress. 

The 2022 Inflation Reduction Act included a two-year extension of the excess business loss limitation rules; however, it did not contain any other individual revenue-raising tax proposals passed by the Democratic-controlled House, nor did it address the ongoing concern over the 10,000 US dollars (USD) cap on the state and local income tax deduction.

On 29 December 2022, the Setting Every Community Up for Retirement Enhancement Act (SECURE Act 2.0) was enacted as part of the Consolidated Appropriations Act. SECURE Act 2.0 made numerous changes to retirement plans with various effective dates, many of which go into effect starting in 2023. Key provisions include changes to required minimum distributions (RMDs), limits on catch-up contributions, qualified charitable deductions (QCDs), and the ability of employers to make matching contributions to certain plans with respect to qualified student loan payments. 

After the 2022 midterm elections, Republicans took control of the US House of Representatives away from Congressional Democrats, while Democrats now hold a 51-seat majority in the Senate. Divided party control of the federal government will likely limit tax legislation through the end of President Biden’s term in 2024, with the next major tax changes occurring at the end of 2025, due to the sun-setting of individual tax provisions enacted as part of the 2017 tax reform act.

Net operating loss rules

The 2017 tax reform legislation (P.L. 115-97) limits NOLs arising after 2017 to 80% of taxable income and eliminates the ability to carry NOLs back to prior tax years. The CARES Act temporarily allowed taxpayers to carry back 100% of NOLs arising in tax years beginning after 2017 and before 2021 to the prior five tax years, effectively delaying the 80% taxable income limitation and carryback prohibition until 2021. The CARES Act also temporarily allowed taxpayers to claim an NOL deduction equal to 100% of taxable income (rather than the current 80% limit). 

For tax years beginning after 2021, taxpayers are eligible for: (i) a 100% deduction of NOLs arising in tax years before 2018 and (ii) a deduction limited to 80% of taxable income for NOLs arising in tax years after 2017.

Deferral of non-corporate taxpayer loss limits

The 2017 tax reform legislation (P.L. 115-97) implemented Section 461(l). Under the rule, active net business losses in excess of USD 250,000 (USD 500,000 for joint filers), adjusted for inflation, are disallowed and are treated as NOL carryforwards in the following tax year. This provision is set to expire after the 2028 tax year.

Medical expense itemised deduction

The medical expense deduction floor is 7.5% of adjusted gross income.

Exclusion for discharge of indebtedness on principal residence

The gross income exclusion on the discharge of indebtedness on principal residences applies through 2025.