The American Tax Relief Act of 2012 will impact tax payers in 2013 with new tax relief, permanent extension of tax relief and temporary extension of tax relief.
Below is a review of the tax changes for individuals:
New Tax Relief
High Income Tax Rate - Tax Rates for those with taxable incomes above $400,000 (single) and $450,000 (married) will increase from 35% to 39.6%.
Long-Term Capital Gains Rates – starting in 2013 three rates apply on Long-Term Capital Gains: 0% for those in 15% or lower bracket [INCOME RANGE?]; 20% for high income taxpayers (i.e. those in 39.6% bracket - $400,000/$450,000 TI); 15% for all others except
Itemized Deduction Phase Out -Individuals with Adjusted Gross Income (AGI) above $250,000 (single) or $300,000 (married) will be subject to phase out (up to 80%) of itemized deductions – Starting in 2013
Personal Exemption Phase Out – Fully phased out with $372,500 (single) & $422,500 (married) in AGI.
Alternative Minimum Tax Patch – Alternative Minimum Tax (AMT) exemption amounts of $50,600 (single) & $75,750 (married) for 2012 – All nonrefundable personal credits can offset AMT
Extended Permanently
Marriage Penalty Relief (IRC §1(f)(8) & §63(c)(2)) - 2X Standard Deduction & 15% bracket
Exclusion of 100% of Gain on Small Business Stock (IRC §1202) – Applies to Stock Acquired 9/28/10 to 12/31/13 - None of gain is AMT preference item.
AMT Preference on Sale of Small Business Stock (IRC §1202) – 7% not 42% of excluded gain is a tax preference
Qualified Dividends from Pass-Through Entities (IRC §871(k)) - Taxed at LTCG Rates – REITs, RIC, Partnerships, S Corporations, Estates, Revocable Estate Trusts and Common Trust Funds
Student Loan Interest Deduction (IRC §221) – Above the line - $2,500 maximum - extended increase in Modified AGI phase out ranges – voluntary payments of interest will be deductible – all interest deductible not just that on first 60 months of payments
Education IRAs Coverdell Educational Savings Accounts (IRC §530) – maximum contribution remains at $2,000
American Opportunity Tax Credit – Credit remains 100% of first $2,000 and 25% of next $2,000 of tuition and higher education expenses – Maximum $2,500/student - Extended Through 2017
Earned Income Tax Credit Changes (IRC §32(b)) – Extended Through 2018
Child Care Credit (IRC §24(d)) – Remains at $1,000/child – Extended Through 2018
Child & Dependent Care Expense Credit (IRC §21) – Remains at 35% with $1,050 to $2,100 max credit
Adoption Credit & Employer Provided Assistance Programs – Maximum of $12,770 (2013)
Extended through 2013
Teacher Deduction (IRC §62) – $250/$500
Sales Tax Deduction in Lieu of Income Taxes (IRC §164(b))
Mortgage Insurance Premiums Deduction (IRC §163(h))
Enhanced Charitable Contribution of Conservation Real Property (IRC §170(b)) – deduction of up to 50% or 100% (farmers/ranchers) of TI
Deduction for Qualified Higher Education Tuition and Related Expenses (IRC §222) – Above-the-line $4,000 maximum
Mortgage Debt Forgiveness Exclusion from Income on Principal Residence (IRC §108)
Exclusion for Charitable Distributions from IRAs for those 70 1/2 and Older (IRC §408(d)) – Distributions made in January 2013 treated as made in December, 2012 – those made in December, 2012 can be made to charities
Fringe Transportation Benefits (IRC §132(f))– Exclusion from income of $240/month for van pooling & transit passes
Energy Improvement Credit (IRC §25C) - $500 lifetime for improvements
For more information on these and other changes to the American Tax Relief Act of 2012, please contact Phil Drudy at 973-461-7338 or pdrudy@smolin.com.