GA retirement income exclusion ignores federal capital loss limit

[PavelMakarchuk]

Summary

PolicyEngine's Georgia retirement income exclusion uses the unlimited per-person capital_gains variable rather than the federally-limited net capital gains ($3,000 loss cap per IRC §1211(b)). For filers with large capital losses, the raw capital_gains value makes per-person "retirement income" go deeply negative, which zeros out the exclusion entirely — even when the filer would otherwise be eligible for a $45,000+ exclusion.

Root cause

policyengine_us/variables/gov/states/ga/tax/income/subtractions/retirement/ga_retirement_income_exclusion_retirement_income.py:

adds = "gov.states.ga.tax.income.agi.exclusions.retirement.sources"

parameters/gov/states/ga/tax/income/agi/exclusions/retirement/sources.yaml lists capital_gains as one of the summed sources. At the person level, capital_gains returns the unlimited sum of short_term_capital_gains + long_term_capital_gains, not the federally-limited net (which for joint filers would be max(net_cap_gains, -$3,000) split across spouses).

When the retirement income sum goes negative, ga_retirement_exclusion_person returns a negative value via min_(retirement_income, cap), and ga_subtractions ends up as 0 after the upstream max_(0, ...) clamp, so no exclusion is applied at all.

Legal reference

• O.C.G.A. § 48-7-27(a)(5)(B) — defines retirement income eligible for exclusion
• 2024 GA IT-511 Individual Income Tax Booklet, Schedule 1 Retirement Income Exclusion Worksheet — Line 9 "Capital Gains (Losses)" uses the amount from federal Form 1040 (post-Schedule D loss limitation): https://dor.georgia.gov/document/document/2024-it-511-individual-income-tax-booklet/download
• Georgia Form 500 Schedule 1, Page 2, Line 9 on the TaxAct-generated form shows −$1,500 per spouse (= −$3,000 joint federal cap loss, halved)

Worked example

Input (from policyengine-taxsim #757):

• Joint filer, primary age 69, spouse age 63
• Wages: $123,105 (primary only)
• Interest: $16,312
• Short-term capital gains: −$496,221 (large loss)
• Long-term capital gains: $105,817
• Taxable pensions: $26,881
• Net federal capital gains (Schedule D, post-limit): −$3,000

TaxAct result (from http://taxsim.nber.org/out2psl/757):

GA Schedule 1 Retirement Income Exclusion Worksheet:

Line	Description	Primary (69)	Spouse (63)
1	Salary and wages	123,105	0
5	Earned income (capped at $5,000)	5,000	0
6	Interest	8,156	8,156
9	Capital gains/(losses) — federally limited	−1,500	−1,500
12	Taxable pensions	26,881	0
14	Total of lines 6–13	33,537	6,656
15	Line 5 + Line 14	38,537	6,656
16	Max allowable ($65k / $35k)	65,000	35,000
17	Exclusion	38,537	6,656

Total retirement income exclusion: $45,193 (Schedule 1 Line 13)

PE current result:

• ga_retirement_exclusion_person (p1): −$168,605
• ga_retirement_exclusion_person (s1): −$173,605
• ga_subtractions: $0 (clamped)
• ga_agi: $163,297 (= federal AGI, no exclusion applied)

Suggested fix

Introduce a new person-level variable ga_retirement_exclusion_countable_capital_gains (mirroring the existing ga_retirement_exclusion_countable_earned_income pattern) that returns each person's share of the federally-limited net capital gains. Replace capital_gains with this variable in sources.yaml.

Integration test

- name: GA retirement income exclusion with large capital loss (policyengine-taxsim #757)
  absolute_error_margin: 10
  period: 2024
  input:
    people:
      primary:
        age: 69
        employment_income: 123_105
        taxable_interest_income: 8_156
        long_term_capital_gains: 52_909
        short_term_capital_gains: -248_110
        taxable_private_pension_income: 13_440
      spouse:
        age: 63
        taxable_interest_income: 8_156
        long_term_capital_gains: 52_909
        short_term_capital_gains: -248_110
        taxable_private_pension_income: 13_440
    tax_units:
      tax_unit:
        members: [primary, spouse]
    marital_units:
      marital_unit:
        members: [primary, spouse]
    families:
      family:
        members: [primary, spouse]
    spm_units:
      spm_unit:
        members: [primary, spouse]
    households:
      household:
        members: [primary, spouse]
        state_code_str: GA
  output:
    # Per 2024 GA IT-511 Schedule 1 Worksheet, each spouse's retirement income:
    # Primary: 8,156 (interest) − 1,500 (limited cap loss) + 13,440 (pension half) + 5,000 (earned income cap) = 25,096
    # Spouse:  8,156 (interest) − 1,500 (limited cap loss) + 13,440 (pension half) = 20,096
    # Total exclusion (both under their respective $65k/$35k caps): 45,192
    # (Matches TaxAct's $45,193 within rounding; TaxAct allocates all pension to primary but total matches.)
    ga_retirement_exclusion: 45_192
    # Federal AGI: 163,297; with exclusion subtracted → 118,105
    ga_agi: 118_105

Related

• policyengine-taxsim#757 — NM 2024 123Kpwages 16Kintrec 26Kpensions -496Kstcg 105Kltcg policyengine-taxsim#757
• TaxAct forms and PE output: http://taxsim.nber.org/out2psl/757