Subtract each spouse's Massachusetts business losses

changelog.d/ma-loss-adjustment-per-person.fixed.md

@@ -0,0 +1 @@
+Subtract each spouse's Massachusetts Schedule C, farm, rental, partnership and S corporation losses, so one spouse's loss offsets the other spouse's income.

policyengine_us/tests/policy/baseline/gov/states/ma/tax/income/ma_gross_income_loss_adjustment.yaml

@@ -31,3 +31,50 @@
     # parent's wages (line 3) plus rental income (line 7).
     ma_gross_income_loss_adjustment: 0
     ma_gross_income: 42_000
+
+- name: One spouse's Schedule C loss offsets the other spouse's Schedule C income
+  period: 2022
+  absolute_error_margin: 0.01
+  input:
+    people:
+      head:
+        age: 40
+        employment_income: 40_000
+        self_employment_income: -20_000
+      spouse:
+        age: 40
+        self_employment_income: 50_000
+    tax_units:
+      tax_unit:
+        members: [head, spouse]
+    households:
+      household:
+        members: [head, spouse]
+        state_code: MA
+  output:
+    ma_gross_income_loss_adjustment: -20_000
+    # 40,000 + 50,000 - 20,000
+    ma_gross_income: 70_000
+    # Matches NBER TAXSIM-35 staxbc for the same return.
+    ma_income_tax_before_credits: 2_860
+
+- name: An SSTB Schedule C loss offsets the same person's other Schedule C income
+  period: 2024
+  absolute_error_margin: 0.01
+  input:
+    people:
+      head:
+        age: 40
+        employment_income: 40_000
+        self_employment_income: 30_000
+        sstb_self_employment_income: -10_000
+    tax_units:
+      tax_unit:
+        members: [head]
+    households:
+      household:
+        members: [head]
+        state_code: MA
+  output:
+    ma_gross_income_loss_adjustment: -10_000
+    ma_gross_income: 60_000

policyengine_us/variables/gov/states/ma/tax/income/gross_income/ma_gross_income_loss_adjustment.py

@@ -13,27 +13,27 @@ class ma_gross_income_loss_adjustment(Variable):
     def formula(tax_unit, period, parameters):
         # MA Form 1 allows losses on lines 6a, 6b, and 7 to offset
         # other 5.0% income. irs_gross_income floors each source at
-        # zero, so this variable captures the losses that were dropped.
+        # zero for each person, so this variable captures the losses that
+        # were dropped, person by person: one spouse's loss offsets the
+        # other spouse's income on the joint return.
         # Line 10 instruction: "Be sure to subtract any losses
         # in lines 6 or 7."
         # irs_gross_income leaves out tax unit dependents, whose items are
         # on their own returns, so their losses are left out here too.
-        # Line 6a: Business/profession loss (Schedule C)
-        se_income = tax_unit_non_dep_add(
-            tax_unit, period, ["total_self_employment_income"]
-        )
-        # Line 6b: Farm loss (Schedule F)
-        farm = tax_unit_non_dep_add(tax_unit, period, ["farm_operations_income"])
-        # Line 7: Rental, partnership, S-corp, farm rent losses
-        rental = tax_unit_non_dep_add(tax_unit, period, ["rental_income"])
-        partnership = tax_unit_non_dep_add(
-            tax_unit, period, ["partnership_s_corp_income"]
-        )
-        farm_rent = tax_unit_non_dep_add(tax_unit, period, ["farm_rent_income"])
-        return (
-            min_(se_income, 0)
-            + min_(farm, 0)
-            + min_(rental, 0)
-            + min_(partnership, 0)
-            + min_(farm_rent, 0)
-        )
+        person = tax_unit.members
+        not_dependent = ~person("is_tax_unit_dependent", period)
+        sources = [
+            # Line 6a: Business/profession loss (Schedule C)
+            "self_employment_income",
+            "sstb_self_employment_income",
+            # Line 6b: Farm loss (Schedule F)
+            "farm_operations_income",
+            # Line 7: Rental, partnership, S-corp, farm rent losses
+            "rental_income",
+            "partnership_s_corp_income",
+            "farm_rent_income",
+        ]
+        losses = 0
+        for source in sources:
+            losses += tax_unit.sum(not_dependent * min_(person(source, period), 0))
+        return losses