Keep capital gains and losses out of Massachusetts Part B income

changelog.d/ma-part-b-capital-loss.fixed.md

@@ -0,0 +1 @@
+Keep capital gains and losses out of Massachusetts Part B income, and count capital gain distributions reported without a federal Schedule D on Massachusetts Schedule D (Part C).

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

@@ -0,0 +1,228 @@
+# Capital gains and losses go on Schedules B and D, never on Form 1,
+# lines 3 through 10 (Part B). Expected values are computed line by line
+# from the 2023 Form 1, Schedule B and Schedule D. A single filer with
+# 60,000 of wages and no other 5.0% income has Part B taxable income of
+# 60,000 - 2,000 (Form 1, line 11a) - 4,400 (line 18) = 53,600 (line 19).
+
+- name: A long-term loss applied against short-term gains does not reduce Part B income
+  period: 2023
+  absolute_error_margin: 0.01
+  input:
+    people:
+      head:
+        age: 40
+        employment_income: 60_000
+        non_qualified_dividend_income: 1_000
+        short_term_capital_gains: 3_000
+        long_term_capital_gains: -1_000
+    tax_units:
+      tax_unit:
+        members: [head]
+    households:
+      household:
+        members: [head]
+        state_code: MA
+  output:
+    # Form 1, line 10 = line 3 = 60,000.
+    ma_part_b_gross_income: 60_000
+    ma_part_b_taxable_income: 53_600
+    # Schedule D, line 13 = -1,000; line 14 = Schedule B, line 25
+    # = min(1,000, 3,000) = 1,000; line 15 = -1,000 + 1,000 = 0.
+    # Schedule B: line 26 = 3,000 - 1,000 = 2,000 = line 28; line 31 = 1,000;
+    # line 32 omitted (Schedule D, line 15 is 0); line 35 = 1,000 + 2,000.
+    ma_part_a_agi: 3_000
+    # Schedule B, line 38 = line 9 = 1,000; line 39 = 3,000 - 1,000 = 2,000.
+    ma_part_a_taxable_dividend_income: 1_000
+    ma_part_a_taxable_capital_gains_income: 2_000
+    ma_part_c_agi: 0
+    # 5% x (53,600 + 1,000) + 8.5% x 2,000 = 2,730 + 170.
+    ma_income_tax_before_credits: 2_900
+
+- name: A long-term loss applied against short-term gains without dividends
+  period: 2023
+  absolute_error_margin: 0.01
+  input:
+    people:
+      head:
+        age: 40
+        employment_income: 60_000
+        short_term_capital_gains: 3_000
+        long_term_capital_gains: -1_000
+    tax_units:
+      tax_unit:
+        members: [head]
+    households:
+      household:
+        members: [head]
+        state_code: MA
+  output:
+    ma_part_b_gross_income: 60_000
+    # Schedule B, line 25 = 1,000; line 28 = line 39 = 2,000.
+    ma_part_a_agi: 2_000
+    ma_part_a_taxable_capital_gains_income: 2_000
+    # 5% x 53,600 + 8.5% x 2,000 = 2,680 + 170.
+    ma_income_tax_before_credits: 2_850
+
+- name: A long-term loss larger than the short-term gain does not reduce Part B income
+  period: 2023
+  absolute_error_margin: 0.01
+  input:
+    people:
+      head:
+        age: 40
+        employment_income: 60_000
+        non_qualified_dividend_income: 1_000
+        short_term_capital_gains: 1_000
+        long_term_capital_gains: -3_000
+    tax_units:
+      tax_unit:
+        members: [head]
+    households:
+      household:
+        members: [head]
+        state_code: MA
+  output:
+    ma_part_b_gross_income: 60_000
+    ma_part_b_taxable_income: 53_600
+    # Schedule D, line 14 = Schedule B, line 25 = min(3,000, 1,000) = 1,000;
+    # line 15 = -2,000. Line 32 worksheet: line 2 = min(1,000, 2,000) = 1,000;
+    # line 4 = 1,000; line 5 = 2,000; line 6 = 1,000. Schedule B,
+    # line 33 = 1,000 - 1,000 = 0; line 35 = 0 + 0. Schedule D, line 17
+    # = -2,000 + 1,000 = -1,000 is carried over (line 23).
+    ma_part_a_agi: 0
+    ma_part_c_agi: 0
+
+- name: One spouse's short-term loss against the other spouse's long-term gain does not add to Part B income
+  period: 2023
+  absolute_error_margin: 0.01
+  input:
+    people:
+      head:
+        age: 40
+        employment_income: 60_000
+        long_term_capital_gains: 5_000
+      spouse:
+        age: 40
+        short_term_capital_gains: -2_000
+    tax_units:
+      tax_unit:
+        members: [head, spouse]
+    households:
+      household:
+        members: [head, spouse]
+        state_code: MA
+  output:
+    # Form 1, line 10 = line 3 = 60,000; line 19 = 60,000 - 2,000 - 8,800.
+    ma_part_b_gross_income: 60_000
+    ma_part_b_taxable_income: 49_200
+    # Schedule B: line 19c = -2,000; line 20 = 0 (line 9 is 0); line 21
+    # = -2,000; line 22 = Schedule D, line 14 = min(2,000, 5,000) = 2,000.
+    # Schedule D, line 15 = 5,000 - 2,000 = 3,000 = line 21.
+    ma_part_a_agi: 0
+    ma_part_c_agi: 3_000
+    # 5% x 49,200 + 5% x 3,000 = 2,460 + 150.
+    ma_income_tax_before_credits: 2_610
+
+- name: Capital gain distributions without a federal Schedule D are Part C income
+  period: 2023
+  absolute_error_margin: 0.01
+  input:
+    people:
+      head:
+        age: 40
+        employment_income: 60_000
+        non_sch_d_capital_gains: 5_000
+    tax_units:
+      tax_unit:
+        members: [head]
+    households:
+      household:
+        members: [head]
+        state_code: MA
+  output:
+    ma_part_b_gross_income: 60_000
+    ma_part_b_taxable_income: 53_600
+    # Schedule D, line 6 = 5,000 = lines 9, 11, 13, 15, 17, 19 and 21.
+    ma_part_c_gross_income: 5_000
+    ma_part_c_agi: 5_000
+    # 5% x 53,600 + 5% x 5,000 = 2,680 + 250.
+    ma_income_tax_before_credits: 2_930
+
+- name: A short-term loss offsets capital gain distributions in Part C
+  period: 2023
+  absolute_error_margin: 0.01
+  input:
+    people:
+      head:
+        age: 40
+        employment_income: 60_000
+        non_sch_d_capital_gains: 5_000
+        short_term_capital_gains: -2_000
+    tax_units:
+      tax_unit:
+        members: [head]
+    households:
+      household:
+        members: [head]
+        state_code: MA
+  output:
+    ma_part_b_gross_income: 60_000
+    # Schedule B: line 19c = -2,000; line 20 = 0 (line 9 is 0); line 21
+    # = -2,000; line 22 = Schedule D, line 14 = min(2,000, 5,000) = 2,000.
+    # Schedule D, line 15 = 5,000 - 2,000 = 3,000.
+    ma_part_c_agi: 3_000
+    # 5% x 53,600 + 5% x 3,000 = 2,680 + 150.
+    ma_income_tax_before_credits: 2_830
+
+- name: A long-term loss offsets capital gain distributions on Schedule D
+  period: 2023
+  absolute_error_margin: 0.01
+  input:
+    people:
+      head:
+        age: 40
+        employment_income: 60_000
+        non_sch_d_capital_gains: 5_000
+        long_term_capital_gains: -3_000
+    tax_units:
+      tax_unit:
+        members: [head]
+    households:
+      household:
+        members: [head]
+        state_code: MA
+  output:
+    ma_part_b_gross_income: 60_000
+    # Schedule D: line 1 = -3,000; line 6 = 5,000; line 9 = 2,000 = line 13
+    # = line 15 = line 21.
+    ma_part_c_agi: 2_000
+    # 5% x 53,600 + 5% x 2,000 = 2,680 + 100.
+    ma_income_tax_before_credits: 2_780
+
+- name: Capital gain distributions that cover a long-term loss leave short-term gains whole
+  period: 2023
+  absolute_error_margin: 0.01
+  input:
+    people:
+      head:
+        age: 40
+        employment_income: 60_000
+        non_sch_d_capital_gains: 5_000
+        short_term_capital_gains: 3_000
+        long_term_capital_gains: -1_000
+    tax_units:
+      tax_unit:
+        members: [head]
+    households:
+      household:
+        members: [head]
+        state_code: MA
+  output:
+    ma_part_b_gross_income: 60_000
+    # Schedule D, line 13 = -1,000 + 5,000 = 4,000, so Schedule B, line 25
+    # is omitted: line 26 = line 24 = 3,000 = line 28 = line 39.
+    ma_part_a_agi: 3_000
+    ma_part_a_taxable_capital_gains_income: 3_000
+    ma_part_c_agi: 4_000
+    # 5% x 53,600 + 8.5% x 3,000 + 5% x 4,000 = 2,680 + 255 + 200.
+    ma_income_tax_before_credits: 3_135

policyengine_us/variables/gov/states/ma/tax/income/adjusted_gross_income/ma_part_a_agi.py

@@ -30,7 +30,11 @@ def formula(tax_unit, period, parameters):
                 short_term_capital_loss,
             ),
         )
-        long_term_capital_gains = add(tax_unit, period, ["long_term_capital_gains"])
+        # Massachusetts Schedule D, line 13 includes capital gain
+        # distributions reported without a federal Schedule D (line 6).
+        long_term_capital_gains = add(
+            tax_unit, period, ["long_term_capital_gains", "non_sch_d_capital_gains"]
+        )
         long_term_capital_loss = max_(0, -long_term_capital_gains)
 
         long_term_loss_against_short_term_gain = min_(

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

@@ -11,10 +11,23 @@ class ma_part_b_gross_income(Variable):
     defined_for = StateCode.MA
 
     def formula(tax_unit, period, parameters):
+        # M.G.L. c. 62 § 2(b)(2): Part B gross income is Massachusetts gross
+        # income not included in Part A or Part C gross income.
         ma_gross_income = tax_unit("ma_gross_income", period)
-        ma_part_a_gross_income = tax_unit("ma_part_a_gross_income", period)
-        ma_part_c_gross_income = tax_unit("ma_part_c_gross_income", period)
-        return max_(
-            0,
-            ma_gross_income - ma_part_a_gross_income - ma_part_c_gross_income,
+        # ma_gross_income starts from irs_gross_income, which adds each
+        # filer's dividends and net capital gain floored at zero. Remove those
+        # same amounts: they go on Schedules B and D, and capital losses never
+        # reduce Part B income (§ 2(d)(1)(M) disallows IRC § 62(a)(3)).
+        # Subtracting Part A and Part C gross income instead would leave the
+        # difference between their loss netting and irs_gross_income's in Part B.
+        person = tax_unit.members
+        is_dependent = person("is_tax_unit_dependent", period)
+        dividends = max_(0, person("dividend_income", period))
+        capital_gains = max_(0, person("capital_gains", period))
+        # Capital gain distributions reported without a federal Schedule D
+        # go on Massachusetts Schedule D, line 6.
+        distributions = max_(0, person("non_sch_d_capital_gains", period))
+        part_a_and_c_income = tax_unit.sum(
+            where(is_dependent, 0, dividends + capital_gains + distributions)
         )
+        return max_(0, ma_gross_income - part_a_and_c_income)

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

@@ -11,8 +11,11 @@ class ma_part_c_gross_income(Variable):
     defined_for = StateCode.MA
 
     def formula(tax_unit, period, parameters):
-        # Long-term capital gains
-        ltcg = add(tax_unit, period, ["long_term_capital_gains"])
+        # Long-term capital gains, with capital gain distributions reported
+        # without a federal Schedule D (Massachusetts Schedule D, line 6)
+        ltcg = add(
+            tax_unit, period, ["long_term_capital_gains", "non_sch_d_capital_gains"]
+        )
         # Short-term capital gains (can be negative)
         stcg = add(tax_unit, period, ["short_term_capital_gains"])
         # Per MA Schedule B line 22, short-term losses offset long-term gains