Tax 28% rate and unrecaptured 1250 gain at regular rates below the 24% bracket top, and use Schedule D Tax Worksheet line 21 on Form 6251 line 27

changelog.d/amt-part-iii-line-27-worksheet-line-21.fixed.md

@@ -0,0 +1 @@
+Tax 28 percent rate and unrecaptured section 1250 gain at the regular rates on taxable income up to the top of the 24 percent bracket, the amount taxed below 25 percent under 26 U.S.C. 1(h)(1)(A), and enter Schedule D Tax Worksheet line 21 on Form 6251 Part III line 27.

policyengine_us/parameters/gov/irs/capital_gains/regular_rate_limit.yaml

@@ -0,0 +1,13 @@
+description: The IRS taxes capital gain at the regular rates on taxable income that the regular rate schedule taxes below this rate, up to taxable income less adjusted net capital gain.
+values:
+  # Pub. L. 107-16, section 101(c)(2)(A), substituted "25 percent" for
+  # "28 percent".
+  2001-01-01: 0.25
+metadata:
+  unit: /1
+  label: Capital gains regular rate limit
+  reference:
+    - title: 26 U.S.C. § 1(h)(1)(A)(ii)(I)
+      href: https://www.law.cornell.edu/uscode/text/26/1#h_1_A_ii_I
+    - title: 2025 Instructions for Schedule D (Form 1040), Schedule D Tax Worksheet, line 19
+      href: https://www.irs.gov/pub/irs-pdf/i1040sd.pdf#page=15

policyengine_us/reforms/additional_tax_bracket/additional_tax_bracket_reform.py

@@ -2,6 +2,7 @@
 from policyengine_core.periods import period as period_
 from policyengine_core.periods import instant
 from policyengine_us.variables.gov.irs.tax.federal_income.before_credits.tax_at_main_rates import (
+    amount_taxed_below_rate,
     tax_at_main_rates,
 )
 from policyengine_us.variables.gov.irs.tax.federal_income.foreign_earned_income_exclusion.schedule_d_tax_worksheet_after_capital_gain_excess import (
@@ -109,10 +110,33 @@ def formula(tax_unit, period, parameters):
             tax_on_excluded = tax_at_main_rates(excluded, filing_status, bracket)
             return where(excluded > 0, max_(0, tax - tax_on_excluded), tax)
 
+    class taxable_income_taxed_below_25_percent(Variable):
+        value_type = float
+        entity = TaxUnit
+        label = "Taxable income taxed at a rate below 25 percent"
+        unit = USD
+        definition_period = YEAR
+        reference = "https://www.law.cornell.edu/uscode/text/26/1#h_1_A_ii_I"
+
+        def formula(tax_unit, period, parameters):
+            # 26 U.S.C. 1(h)(1)(A)(ii)(I) on the reform's rate schedule, as
+            # in the baseline formula on the baseline schedule.
+            taxable_income = tax_unit(
+                "taxable_income_plus_section_911_exclusion", period
+            )
+            filing_status = tax_unit("filing_status", period)
+            return amount_taxed_below_rate(
+                taxable_income,
+                filing_status,
+                parameters(period).gov.contrib.additional_tax_bracket.bracket,
+                parameters(period).gov.irs.capital_gains.regular_rate_limit,
+            )
+
     class reform(Reform):
         def apply(self):
             self.update_variable(income_tax_main_rates)
             self.update_variable(regular_tax_before_credits)
+            self.update_variable(taxable_income_taxed_below_25_percent)
 
     return reform
 

policyengine_us/reforms/biden/budget_2025/capital_gains_tax_increase.py

@@ -2,6 +2,9 @@
 from policyengine_us.variables.gov.irs.tax.federal_income.foreign_earned_income_exclusion.section_911_net_capital_gain_other_than_dividends import (
     section_911_net_capital_gain_other_than_dividends,
 )
+from policyengine_us.variables.gov.irs.tax.federal_income.capital_gains.capital_gains_tax import (
+    rate_gain_taxed_at_28_percent,
+)
 
 
 def create_capital_gains_tax_increase() -> Reform:
@@ -130,8 +133,16 @@ def formula(tax_unit, period, parameters):
                 cg.unrecaptured_s_1250_rate * taxable_unrecaptured_gain
             )
 
-            remaining_cg_tax = (
-                tax_unit("section_911_28_percent_rate_gain", period) * cg.other_cg_rate
+            # As in the baseline formula, 28 percent of the rest of taxable
+            # income (26 U.S.C. 1(h)(1)(F)): the 28 percent rate gain less
+            # any of it taxed at the regular rates.
+            remaining_cg_tax = cg.other_cg_rate * rate_gain_taxed_at_28_percent(
+                tax_unit,
+                period,
+                taxable_income,
+                non_cg_taxable_income,
+                adjusted_net_cg,
+                taxable_unrecaptured_gain,
             )
             return main_cg_tax + unrecaptured_gain_tax + remaining_cg_tax
 

policyengine_us/reforms/harris/capital_gains/harris_capital_gains.py

@@ -2,6 +2,9 @@
 from policyengine_us.variables.gov.irs.tax.federal_income.foreign_earned_income_exclusion.section_911_net_capital_gain_other_than_dividends import (
     section_911_net_capital_gain_other_than_dividends,
 )
+from policyengine_us.variables.gov.irs.tax.federal_income.capital_gains.capital_gains_tax import (
+    rate_gain_taxed_at_28_percent,
+)
 
 
 def create_harris_capital_gains() -> Reform:
@@ -119,8 +122,16 @@ def formula(tax_unit, period, parameters):
                 cg.unrecaptured_s_1250_rate * taxable_unrecaptured_gain
             )
 
-            remaining_cg_tax = (
-                tax_unit("section_911_28_percent_rate_gain", period) * cg.other_cg_rate
+            # As in the baseline formula, 28 percent of the rest of taxable
+            # income (26 U.S.C. 1(h)(1)(F)): the 28 percent rate gain less
+            # any of it taxed at the regular rates.
+            remaining_cg_tax = cg.other_cg_rate * rate_gain_taxed_at_28_percent(
+                tax_unit,
+                period,
+                taxable_income,
+                non_cg_taxable_income,
+                adjusted_net_cg,
+                taxable_unrecaptured_gain,
             )
 
             return main_cg_tax + unrecaptured_gain_tax + remaining_cg_tax

policyengine_us/tests/policy/baseline/gov/irs/tax/federal_income/alternative_minimum_tax/amt_tax_including_cg.yaml

@@ -6,6 +6,7 @@
     dwks10: 0
     dwks13: 0
     dwks14: 0
+    dwks19: 0
     unrecaptured_section_1250_gain: 0
   output:
     amt_tax_including_cg: 13_000
@@ -18,6 +19,7 @@
     dwks10: 0
     dwks13: 0
     dwks14: 0
+    dwks19: 0
     unrecaptured_section_1250_gain: 0
   output:
     amt_tax_including_cg: 26_000
@@ -30,6 +32,7 @@
     dwks10: 50_000
     dwks13: 30_000
     dwks14: 0
+    dwks19: 0
     unrecaptured_section_1250_gain: 0
   output:
     # AMTI - exemption = $100k; ordinary AMTI = $70k * 26% = $18,200.
@@ -45,6 +48,7 @@
     dwks10: 200_000
     dwks13: 150_000
     dwks14: 0
+    dwks19: 0
     unrecaptured_section_1250_gain: 0
   output:
     # Ordinary AMTI tax: 26% * $220,700 + 28% * $229,300 = $121,586.
@@ -61,6 +65,7 @@
     dwks10: 500_000
     dwks13: 300_000
     dwks14: 0
+    dwks19: 0
     unrecaptured_section_1250_gain: 200_000
   output:
     # Ordinary AMTI tax: 26% * $220,700 + 28% * $279,300 = $135,586.
@@ -81,6 +86,7 @@
     dwks10: 44_625
     dwks13: 44_625
     dwks14: 0
+    dwks19: 0
     unrecaptured_section_1250_gain: 0
   output:
     # L22 = L23 = $44,625; L24 = $0; nothing in 15% or 20%; L17 = $0.
@@ -97,6 +103,7 @@
     dwks10: 492_300
     dwks13: 492_300
     dwks14: 0
+    dwks19: 0
     unrecaptured_section_1250_gain: 0
   output:
     # 0% bracket consumes $44,625; remaining $447,675 at 15% =
@@ -113,6 +120,7 @@
     dwks10: 600_000
     dwks13: 600_000
     dwks14: 0
+    dwks19: 0
     unrecaptured_section_1250_gain: 0
   output:
     # 0%: $44,625; 15%: $447,675 (= $492,300 - $44,625) * 15% =
@@ -132,6 +140,7 @@
     dwks10: 100_000
     dwks13: 100_000
     dwks14: 50_000
+    dwks19: 50_000
     unrecaptured_section_1250_gain: 0
   output:
     # Ordinary AMTI tax: 26% * $200,000 = $52,000.
@@ -151,6 +160,7 @@
     dwks10: 400_000
     dwks13: 400_000
     dwks14: 0
+    dwks19: 0
     unrecaptured_section_1250_gain: 0
   output:
     # 0%: $89,250 (joint); 15%: $310,750 * 15% = $46,612.50;
@@ -173,6 +183,7 @@
     dwks10: 925_000
     dwks13: 925_000
     dwks14: 136_000
+    dwks19: 136_000
     unrecaptured_section_1250_gain: 0
   output:
     # Line 12: $1,061,000. Line 13: $925,000 ($25,000 of qualified
@@ -197,6 +208,7 @@
     dwks10: 50_000
     dwks13: 50_000
     dwks14: 200_000
+    dwks19: 200_000
     unrecaptured_section_1250_gain: 0
   output:
     # Line 12: $250,000. Lines 13, 15 and 16: $50,000. Line 17: $200,000.
@@ -215,6 +227,7 @@
     dwks10: 50_000
     dwks13: 50_000
     dwks14: 119_550
+    dwks19: 119_550
     unrecaptured_section_1250_gain: 0
   output:
     # Line 17: $119,550, which is "$119,550 or less", so line 18 is 26% *
@@ -231,6 +244,7 @@
     dwks10: 50_000
     dwks13: 50_000
     dwks14: 119_551
+    dwks19: 119_551
     unrecaptured_section_1250_gain: 0
   output:
     # Line 17: $119,551. Line 18: 28% * $119,551 - $2,391 = $31,083.28
@@ -246,6 +260,7 @@
     dwks10: 100_000
     dwks13: 100_000
     dwks14: 300_000
+    dwks19: 300_000
     unrecaptured_section_1250_gain: 0
   output:
     # Line 17: $300,000. Line 18: 28% * $300,000 - $2,391 = $81,609 (the
@@ -263,18 +278,25 @@
     dwks10: 300_000
     dwks13: 200_000
     dwks14: 200_000
+    # Schedule D Tax Worksheet with taxable income (line 1) of $400,000:
+    # line 18 = $400,000 - $300,000 = $100,000; line 19 = $197,300 (the
+    # smaller of line 1 or $197,300); line 20 = the smaller of line 14 or
+    # line 19 = $197,300; line 21 = the larger of line 18 or line 20.
+    dwks19: 197_300
     unrecaptured_section_1250_gain: 100_000
   output:
     # Line 12: $500,000. Line 13: $200,000. Line 14: $100,000.
     # Line 15: min($200,000 + $100,000, $300,000) = $300,000. Line 16:
     # $300,000. Line 17: $200,000. Line 18: 28% * $200,000 - $2,391 =
-    # $53,609. Line 21: $0. Line 22: $200,000. Line 23: $0. Line 24:
-    # $200,000. Line 29: $300,000 - $200,000 = $100,000. Line 30: $100,000.
-    # Line 31: $15,000. Line 32: $100,000. Line 33: $100,000. Line 34:
-    # $20,000. Line 35: $200,000 + $100,000 + $100,000 = $400,000.
-    # Line 36: $100,000. Line 37: 25% = $25,000.
-    # Line 38: $53,609 + $15,000 + $20,000 + $25,000 = $113,609.
-    amt_tax_including_cg: 113_609
+    # $53,609. Line 20: $200,000. Line 21: $0. Line 22: $200,000. Line 23:
+    # $0. Line 24: $200,000. Line 27: $197,300 (worksheet line 21, not
+    # line 14). Line 28: $197,300. Line 29: $300,000 - $197,300 =
+    # $102,700. Line 30: $102,700. Line 31: $15,405. Line 32: $102,700.
+    # Line 33: $97,300. Line 34: $19,460. Line 35: $200,000 + $102,700 +
+    # $97,300 = $400,000. Line 36: $100,000. Line 37: 25% = $25,000.
+    # Line 38: $53,609 + $15,405 + $19,460 + $25,000 = $113,474. (Line 14
+    # of the worksheet on line 27 would give $113,609.)
+    amt_tax_including_cg: 113_474
 
 - name: Single filer with the amounts of the first separate case keeps the full breakpoint
   period: 2025
@@ -284,6 +306,7 @@
     dwks10: 925_000
     dwks13: 925_000
     dwks14: 136_000
+    dwks19: 136_000
     unrecaptured_section_1250_gain: 0
   output:
     # Line 17: $136,000 <= $239,100, so line 18 is 26% * $136,000 =
@@ -301,6 +324,7 @@
     dwks10: 0
     dwks13: 0
     dwks14: 136_000
+    dwks19: 136_000
     unrecaptured_section_1250_gain: 0
   output:
     # Rev. Proc. 2025-32, section 3.10: for 2026 the 28 percent rate applies
@@ -334,6 +358,9 @@
     # Line 22 = 211,900, line 23 = 0, line 29 = 533,400 - 100,000 = 433,400,
     # line 30 = 211,900, line 31 = 31,785, line 33 = 0. Line 38 = 57,785.
     dwks14: 100_000
+    # Line 27: worksheet line 21, also 100,000 with no 28 percent rate or
+    # unrecaptured section 1250 gain.
+    dwks19: 100_000
     amt_tax_including_cg: 57_785
 
 - name: The same gains without the exclusion