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
