H.R. 10367 — Working Americans Affordability Tax Credit Act

This section eliminates the modified adjusted gross income threshold for the 3.8 percent net investment income tax in the case of applicable taxpayers (as defined in section 495). For such taxpayers, the tax applies to the full amount of net investment income (or undistributed net investment income for estates and trusts) beginning with taxable years after December 31, 2025.

This section bars covered expatriates who qualify as applicable taxpayers from electing to defer the mark-to-market tax on expatriation. It requires them to treat all remaining property as sold at the end of the 10-taxable-year period and subjects them to the expatriation tax rules under section 877 for each year in that period. The changes apply to taxable years beginning after December 31, 2025.

This section prohibits applicable entities from using nonrecognition treatment under section 1031(a) for like-kind exchanges of real property when a notice received under section 493(b)(2)(A) or (c)(2) remains in effect. The restriction applies to exchanges completed after December 31, 2025.

This section denies nonrecognition treatment under section 351 for transfers of property by applicable entities to a corporation in exchange for stock when an applicable notice relating to a 20-percent owner is in effect at the time of the exchange. The limitation applies to exchanges completed after December 31, 2025.

This section extends in-kind distribution rules under section 643(e)(3) to any distribution of property by an applicable trust (as defined in section 495(c)) or by an estate described in section 495(a)(1)(B)(ii). It applies loan treatment rules under section 643(i) to applicable trusts and to loans to any person not exempt from tax under this chapter (from United States persons). It requires additional reporting under section 6048(c)(1) to determine any tax increase under new section 686. It adds section 686, which increases the tax on a beneficiary of an applicable foreign trust by the beneficiary’s share of the deferral recapture amount that would apply under section 492(a) to gain on an applicable transfer of a covered asset (unless the trust pays the tax). It directs the Secretary to issue regulations coordinating these rules with the throwback rules of subpart D. The amendments apply to taxable years beginning after December 31, 2025 (and to applicable transfers occurring in such years for foreign trusts).

This section imposes an additional tax on applicable taxpayers equal to the interest that would have accrued on taxes deferred on applicable deferred compensation (capped at 10 percent of such compensation) plus 10 percent of any includible severance pay. It applies to nonqualified deferred compensation plans (including stock appreciation rights) and section 83 property, with the deferral period beginning on the date the taxpayer first obtains a legally binding right to the compensation.

This section requires that amounts received under applicable private placement life insurance or annuity contracts held by applicable taxpayers be included in gross income under the annuity rules of section 72, imposes a 10-percent additional tax on such distributions, and repeals the exclusion from gross income for death benefits paid under such contracts. It also requires issuers to file annual returns reporting contract holders and amounts received. These changes apply to amounts received in taxable years beginning after December 31, 2025.

This section terminates the exclusion from gross income under section 1202(a) for gains on qualified small business stock held by applicable taxpayers (as defined in section 495) for sales or exchanges on or after November 30, 2025, except for stock acquired before that date.

This section terminates elections to defer capital gains through investments in qualified opportunity funds after December 31, 2026, or after November 30, 2025, for taxpayers that become applicable taxpayers in 2025. It also limits the 10-year exclusion for applicable taxpayers and entities to the lesser of the investment’s fair market value at the later of 10 years or the date the taxpayer or entity became applicable, or its fair market value on the sale date.