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President Obama signed into law the American Taxpayer Relief Act of 2012

On January 2, 2013, President Obama signed into law the American Taxpayer Relief Act of 2012 (the Act).  The following is a brief summary of the more broadly applicable provisions of the Act.  More details and other provisions can be found in the attached CCH Tax Briefing.

Businesses

  • The new law renews 50-percent bonus depreciation through 2013 (2014 in the case of certain longer period production property and transportation property). Code Sec. 179 small business expensing is also extended through 2013 with a generous $500,000 expensing allowance and a $2 million investment limit. Without the new law, the expensing allowance was scheduled to plummet to $25,000 with a $200,000 investment limit.
  • To encourage investment in small businesses, the tax laws in recent years have allowed non-corporate taxpayers to exclude a percentage of the gain realized from the sale or exchange of small business stock held for more than five years. The Act extends the 100-percent exclusion from the sale or exchange of small business stock through 2013.
  • A host of business tax incentives are extended through 2013 including the research tax credit, work opportunity tax credit, new markets tax credit, tax incentives for empowerment zones, Subpart F exceptions for active financing income, look-through rules for related controlled foreign corporation payments, etc.

Individuals

  • Individuals with taxable income over $400,000 ($450,000 for married couples filing joint returns and $425,000 for heads of households) are subject to a new 39.6% tax bracket.
  • The limitation on itemized deductions and personal exemption phase out has been restored, but at revised thresholds. The new thresholds for being subject to both limitations are $300,000 for married couples and surviving spouses, $275,000 for heads of households, $250,000 for unmarried taxpayers; and $150,000 for married couples filing separate returns.
  • The new law increases the top rate for qualified capital gains and dividends to 20 percent (the Bush-era top rate was 15 percent). The 20-percent rate will apply to the extent that a taxpayer’s income exceeds the $400,000/$425,000/$450,000 thresholds discussed above. The 15-percent Bush-era tax rate will continue to apply to all other taxpayers (in some cases, zero percent for qualified taxpayers within the 15-percent-or-lower income tax bracket).
  • Effective January 1, 2013, the maximum federal estate tax will rise to 40 percent, but will continue to apply an inflation-adjusted exclusion of $5 million. The new law also makes permanent portability between spouses and some Bush-era technical enhancements to the estate and generation-skipping transfer taxes.

CCH Briefing

Courtesy of Spott, Lucey & Wall, Inc. CPA

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