What the New Tax Bill Means for You
(Jan. 2, 2013)
When President Barack Obama signs the Taxpayer Relief Act of 2012, passed by Congress Jan. 1, it will bring an end to the “fiscal cliff” tax negotiations in Washington. The bill makes significant changes to individual taxation and estate and gift taxes and extends some business tax provisions. Highlights of the new law include the following:
Individual Income Tax Changes for 2013
- The highest rate will increase from 35 percent to 39.6 percent on income in excess of $450,000 for married taxpayers ($400,000 for individuals). The rates for all other individual taxpayers will remain unchanged and have been made permanent.1
- The rate on capital gains and qualified dividends will increase from 15 percent to 20 percent for individuals subject to the 39.6 percent tax rates.
- Phaseouts of personal exemptions and itemized deductions will apply to married individuals with adjusted gross income in excess of $300,000 ($250,000 for individuals).1
- The election to deduct state and local sales taxes in lieu of state and local income taxes expired after the 2011 tax year. The legislation makes the election available for the 2012 and 2013 tax years. This is a significant item for taxpayers residing in states such as Florida, Tennessee, and Texas, which do not impose individual income taxes.
- The bill provides a permanent increase in the alternative minimum tax exemption. This change applies retroactively to the 2012 tax year.1
- The 2 percent payroll tax cut expired on Dec. 31, 2012, and was not renewed.
Business Tax Provisions
- The research credit expired on Dec. 31, 2011. The bill extends the credit from Jan. 1, 2012, through Dec. 31, 2013. The extension also modifies certain computational elements of the credit calculation.
- The $500,000 limitation on Section 179 expense expired after the 2011 tax year. The $500,000 threshold is retained retroactively for the 2012 tax year and extended to the 2013 tax year.
- A bonus depreciation of 50 percent is retained through 2013. The bill also retains favorable depreciation methods for qualifying leasehold improvements, retail improvements, and restaurant buildings.
- The new markets tax credit expired on Dec. 31, 2011. The bill extends the credit from Jan. 1, 2012, through Dec. 31, 2013.
- The work opportunity tax credit expired on Dec. 31, 2011. The bill extends the credit from Jan. 1, 2012, through Dec. 31, 2013.
Estate and Gift Tax Provisions
- The maximum estate and gift tax rate will rise from 35 percent to 40 percent.
- The lifetime exclusion will remain at its current level ($5.12 million for 2012) and be indexed annually for inflation.
1 These items will be adjusted annually for inflation.
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