Subtract each spouse's Massachusetts business losses

[PavelMakarchuk]

Fixes #9909.

What changes

irs_gross_income floors each source at zero for each person. ma_gross_income_loss_adjustment now adds back the dropped losses the same way: min_(source, 0) for each head and spouse and each of self_employment_income, sstb_self_employment_income, farm_operations_income, rental_income, partnership_s_corp_income and farm_rent_income. Before, it netted each source across the head and spouse first, so one spouse's loss was lost when the other spouse had income from the same source.

Tests

Two new cases in ma_gross_income_loss_adjustment.yaml:

• 2022 joint: head wages 40,000 and Schedule C −20,000; spouse Schedule C 50,000. Adjustment −20,000, MA gross income 70,000, tax before credits 2,860 (main: 0, 90,000, 3,860). The tax equals the NBER TAXSIM-35 staxbc for the same return.
• 2024: one person with self_employment_income 30,000 and sstb_self_employment_income −10,000. Adjustment −10,000.

All 655 tests under gov/states/ma and 756 other tests with Massachusetts households pass.

Related

#9908 adds the excess business loss to ma_gross_income next to this adjustment; the two changes are independent.

🤖 Generated with Claude Code

[hua7450]

Approving. Reviewed against the 2022 Form 1 (page 2), the 2022 and 2024 Form 1 instructions, and M.G.L. c.62 section 2.

The per-person, per-source min_(source, 0) add-back over non-dependents is the exact complement of irs_gross_income, which floors each source per person, so Massachusetts gross income becomes the sum of each head's and spouse's net Schedule C/F/E amounts. That is what the form requires: line 10 says "Be sure to subtract any losses in lines 6 or 7", line 6a takes "the amount of income or loss from a business or profession from Massachusetts Schedule C, line 37", and c.62 section 2(d)(1) allows the section 62 business deductions while disallowing only the NOL deduction. I found no rule limiting one spouse's loss against the other's income. Leaving the 461(l) add-back to the separate Schedule X line 6 change is right, and the two PRs share no files.

Hand-checked both new cases: 2022 joint gives -20,000 / 70,000 and 70,000 - 2,000 - 2,000 - 8,800 = 57,200 x 5% = 2,860 (the $2,000 deduction includes self-employment tax per the line 11 instructions); 2024 gives -10,000 / 60,000.

Nits only:

• losses += ... on the accumulator line: this repo's convention is losses = losses + ....
• The reference has no page anchor; the line 6a and line 10 text is on page 9 of the 2024 booklet, and the 2022 Form 1 page 2 quote the issue relies on would be a good addition.
• Out of scope but worth an issue: estate_income (line 7 "trust income or loss") is floored federally and never added back, and ma_gross_income still floors at zero although the instructions allow a loss on line 10.

Limits: tests not run; CI still had pending shards when I looked.