Add the federal excess business loss back to Massachusetts income from 2022

changelog.d/ma-excess-business-loss.fixed.md

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+Add the excess business loss back to Massachusetts 5.0% income for tax years 2022 through 2028 (Schedule X, line 6), measured from 2026 against a Massachusetts threshold that does not adopt the OBBBA reset, with new excess_business_loss and net_business_loss variables.

policyengine_us/parameters/gov/states/ma/tax/income/excess_business_loss/in_effect.yaml

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+description: Massachusetts adds the excess business loss back to 5.0% income if this is true.
+
+values:
+  2018-01-01: false
+  # Massachusetts conforms to the Code as amended on January 1, 2022 for tax
+  # years beginning on or after January 1, 2022 (St. 2022, c. 126, ss. 30 and
+  # 189), including Section 461(l) (TIR 23-5), and to the Code as amended on
+  # January 1, 2024 from tax year 2024 (St. 2024, c. 140, ss. 100 and 251).
+  2022-01-01: true
+  # The Code as amended on January 1, 2024 limits excess business losses
+  # through the 2028 taxable year (TIR 24-14). Massachusetts does not conform
+  # to the OBBBA extension of the limitation (TIR 26-4).
+  2029-01-01: false
+
+metadata:
+  unit: bool
+  period: year
+  label: Massachusetts excess business loss add-back in effect
+  reference:
+    - title: M.G.L. c. 62, s. 1(c), definition of Code
+      href: https://malegislature.gov/Laws/GeneralLaws/PartI/TitleIX/Chapter62/Section1
+    - title: TIR 23-1, Tax Provisions in the Fiscal Year 2023 Budget, Including Massachusetts Personal Income Tax Code Update (Code section 461(l))
+      href: https://www.mass.gov/technical-information-release/working-draft-tir-tax-provisions-in-the-fiscal-year-2023-budget-including-massachusetts-personal-income-tax-code-update
+    - title: TIR 23-5, Chapter 62 Conformity to Select Provisions of the 2022 Internal Revenue Code (Code section 461(l))
+      href: https://www.mass.gov/technical-information-release/tir-23-5-chapter-62-conformity-to-select-provisions-of-the-2022-internal-revenue-code
+    - title: TIR 24-14, Tax Provisions in the Fiscal Year 2025 Budget, II.A.1 Limitation on Noncorporate Excess Business Losses
+      href: https://www.mass.gov/technical-information-release/tir-24-14-tax-provisions-in-the-fiscal-year-2025-budget
+    - title: TIR 26-4, Massachusetts Conformity to Certain Provisions in Public Law No. 119-21 (Sec. 70601)
+      href: https://www.mass.gov/technical-information-release/tir-26-4-massachusetts-conformity-to-certain-provisions-in-public-law-no-119-21
+    - title: 2022 Form 1 instructions, Updated IRC Conformity Date ("Code Update")
+      href: https://web.archive.org/web/20230616200742/https://www.mass.gov/doc/2022-form-1-instructions/download#page=4
+    - title: 2022 Form 1 instructions, Schedule X, line 6 Excess Business Loss Adjustment
+      href: https://web.archive.org/web/20230616200742/https://www.mass.gov/doc/2022-form-1-instructions/download#page=20
+    - title: 2023 Form 1 instructions, Schedule X, line 6 Excess Business Loss Adjustment
+      href: https://www.mass.gov/doc/2023-form-1-instructions/download#page=20
+    - title: 2024 Form 1 instructions, Schedule X, line 6 Excess Business Loss Adjustment
+      href: https://www.mass.gov/doc/2024-form-1-instructions/download#page=20
+    - title: 2025 Form 1 instructions, Schedule X, line 6 Excess Business Loss Adjustment
+      href: https://www.mass.gov/doc/2025-form-1-instructions/download#page=21

policyengine_us/parameters/gov/states/ma/tax/income/excess_business_loss/threshold.yaml

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+description: Massachusetts treats business losses above business income plus this threshold as an excess business loss, under Section 461(l) of the Code as Massachusetts adopts it; only joint returns receive twice the nonjoint threshold.
+metadata:
+  propagate_metadata_to_children: true
+  label: Massachusetts excess business loss threshold
+  breakdown:
+    - filing_status
+  unit: currency-USD
+  period: year
+  reference:
+    - title: M.G.L. c. 62, s. 1(c), definition of Code (as amended on January 1, 2024)
+      href: https://malegislature.gov/Laws/GeneralLaws/PartI/TitleIX/Chapter62/Section1
+    - title: TIR 26-4, Massachusetts Conformity to Certain Provisions in Public Law No. 119-21 (Sec. 70601, no conformity)
+      href: https://www.mass.gov/technical-information-release/tir-26-4-massachusetts-conformity-to-certain-provisions-in-public-law-no-119-21
+    - title: Revenue Procedure 2021-45, section 3.32 (2022 threshold)
+      href: https://www.irs.gov/pub/irs-drop/rp-21-45.pdf#page=19
+    - title: Revenue Procedure 2022-38, section 3.32 (2023 threshold)
+      href: https://www.irs.gov/pub/irs-drop/rp-22-38.pdf#page=18
+    - title: Revenue Procedure 2023-34, section 3.32 (2024 threshold)
+      href: https://www.irs.gov/pub/irs-drop/rp-23-34.pdf#page=17
+    - title: Revenue Procedure 2024-40, section 2.32 (2025 threshold)
+      href: https://www.irs.gov/pub/irs-drop/rp-24-40.pdf#page=17
+    - title: 2022 Form 1 instructions, Schedule X, line 6 Excess Business Loss Adjustment
+      href: https://web.archive.org/web/20230616200742/https://www.mass.gov/doc/2022-form-1-instructions/download#page=20
+    - title: 2024 Form 1 instructions, Schedule X, line 6 Excess Business Loss Adjustment
+      href: https://www.mass.gov/doc/2024-form-1-instructions/download#page=20
+    - title: 2025 Form 1 instructions, Schedule X, line 6 Excess Business Loss Adjustment
+      href: https://www.mass.gov/doc/2025-form-1-instructions/download#page=21
+# Through 2025 the Massachusetts threshold is the federal threshold: Schedule X,
+# line 6 is the excess business loss on U.S. Form 1040, Schedule 1, line 8p.
+# The 2023 Form 1 instructions still print $270,000 / $540,000, but line 8p
+# uses the 2023 federal $289,000 / $578,000 (Rev. Proc. 2022-38).
+# From 2026 the federal threshold uses the OBBBA reset ($256,000 / $512,000,
+# Rev. Proc. 2025-32, section 4.31), which Massachusetts does not adopt
+# (TIR 26-4). The 2026 values follow Section 461(l)(3)(C) as of January 1,
+# 2024: $250,000 times the Section 1(f)(3) cost-of-living adjustment with
+# "2017" for "2016" (average C-CPI-U for the 12 months ending August 31),
+# rounded to the nearest $1,000. 250,000 x 177.1137 / 138.2368 = 320,309,
+# so $320,000 ($640,000 joint). The same computation gives every published
+# figure for 2022-2025 (269,580; 289,140; 304,634; 313,038). The Department
+# of Revenue has not printed a 2026 figure (TIR 26-4; 2025 Form 1
+# instructions, page 21). 320,309 is about $200 below the 320,500 rounding
+# boundary, so a different CPI series could give $321,000.
+HEAD_OF_HOUSEHOLD:
+  metadata:
+    uprating:
+      parameter: gov.irs.uprating
+      rounding:
+        type: nearest
+        interval: 1_000
+  values:
+    2022-01-01: 270_000
+    2023-01-01: 289_000
+    2024-01-01: 305_000
+    2025-01-01: 313_000
+    2026-01-01: 320_000
+JOINT:
+  metadata:
+    uprating:
+      parameter: gov.irs.uprating
+      rounding:
+        # Twice the rounded nonjoint threshold under section 461(l)(3).
+        type: nearest
+        interval: 2_000
+  values:
+    2022-01-01: 540_000
+    2023-01-01: 578_000
+    2024-01-01: 610_000
+    2025-01-01: 626_000
+    2026-01-01: 640_000
+SEPARATE:
+  metadata:
+    uprating:
+      parameter: gov.irs.uprating
+      rounding:
+        type: nearest
+        interval: 1_000
+  values:
+    2022-01-01: 270_000
+    2023-01-01: 289_000
+    2024-01-01: 305_000
+    2025-01-01: 313_000
+    2026-01-01: 320_000
+SINGLE:
+  metadata:
+    uprating:
+      parameter: gov.irs.uprating
+      rounding:
+        type: nearest
+        interval: 1_000
+  values:
+    2022-01-01: 270_000
+    2023-01-01: 289_000
+    2024-01-01: 305_000
+    2025-01-01: 313_000
+    2026-01-01: 320_000
+SURVIVING_SPOUSE:
+  metadata:
+    uprating:
+      parameter: gov.irs.uprating
+      rounding:
+        type: nearest
+        interval: 1_000
+  # Section 461(l)(3)(A) doubles the threshold only for a joint return.
+  values:
+    2022-01-01: 270_000
+    2023-01-01: 289_000
+    2024-01-01: 305_000
+    2025-01-01: 313_000
+    2026-01-01: 320_000

policyengine_us/tests/policy/baseline/gov/irs/income/taxable_income/adjusted_gross_income/above_the_line_deductions/excess_business_loss.yaml

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+- name: An S corporation loss above the 2022 joint threshold is an excess business loss
+  period: 2022
+  input:
+    people:
+      head:
+        age: 50
+        partnership_s_corp_income: -1_000_000
+      spouse:
+        age: 50
+    tax_units:
+      tax_unit:
+        members: [head, spouse]
+    households:
+      household:
+        members: [head, spouse]
+        state_code: TX
+  output:
+    net_business_loss: 1_000_000
+    # 1,000,000 - 540,000 (Rev. Proc. 2021-45)
+    excess_business_loss: 460_000
+    loss_ald: 540_000
+
+- name: Business income of the other spouse raises the allowed loss
+  period: 2022
+  input:
+    people:
+      head:
+        age: 50
+        partnership_s_corp_income: -1_000_000
+      spouse:
+        age: 50
+        self_employment_income: 200_000
+    tax_units:
+      tax_unit:
+        members: [head, spouse]
+    households:
+      household:
+        members: [head, spouse]
+        state_code: TX
+  output:
+    # 1,000,000 - (200,000 + 540,000)
+    excess_business_loss: 260_000
+
+- name: No excess business loss below the 2025 single threshold
+  period: 2025
+  input:
+    people:
+      head:
+        age: 50
+        self_employment_income: -300_000
+    tax_units:
+      tax_unit:
+        members: [head]
+    households:
+      household:
+        members: [head]
+        state_code: TX
+  output:
+    # The 2025 single threshold is $313,000 (Form 461, line 15).
+    excess_business_loss: 0
+
+- name: A dependent's business loss is on their own return
+  period: 2022
+  input:
+    people:
+      head:
+        age: 50
+        partnership_s_corp_income: -400_000
+      dependent:
+        age: 20
+        is_tax_unit_dependent: true
+        partnership_s_corp_income: -500_000
+    tax_units:
+      tax_unit:
+        members: [head, dependent]
+    households:
+      household:
+        members: [head, dependent]
+        state_code: TX
+  output:
+    # 400,000 - 270,000
+    excess_business_loss: 130_000