Finally Congress Passes Bill To Avoid Fiscal Cliff
Congress has voted and passed “American Taxpayer Relief Act” (the Act). The Act will prevent many of the tax hikes that were scheduled to go into effect today and retain many favorable tax breaks that were scheduled to expire, but it would also increase income taxes for some high-income individuals and slightly increase transfer tax rates. Vice President Joe Biden and Senate Minority Leader Mitch McConnell (R-KY) are reportedly credited with negotiating the Act after weeks of failed talks. The Act’s key changes follow:
Tax Rates: The Act will keep the “Bush” tax rates intact for individuals with taxable income under $400,000 $450,000 for married taxpayers, $425,000 for head of household filers). Income above these levels would be taxed at a 39.6% rate.
AMT patch: The Act will permanently patch the Alternative Minimum Tax (AMT).
Capital gains and dividends: The Act will raise the top rate for dividends and capital gains from 15% to 20% for taxpayers who would be subject to the new 39.6% rate.
Deduction limitations for high-income individuals: The Act will reinstate the limitations on the personal exemption and itemized deductions for taxpayers exceeding certain income thresholds. The income thresholds are considerably higher than they had been under prior law.
Transfer taxes: The Act will prevent steep increases in estate, gift and generation-skipping transfer (GST) tax that were slated to occur for individuals dying and gifts made after 2012 by permanently keeping the exemption level at $5,000,000 (as indexed for inflation). However, the Act would also permanently increase the top estate, gift and GST rate from 35% to 40%.
Individual extenders: The Act will extend a host of individual provisions including the treatment of mortgage insurance premiums as qualified residence interest, deductions for State and local general sales taxes, and the above the line deduction for qualified tuition and related expenses.
Business tax extenders: Many key business tax breaks will be extended including depreciation provisions, notably including bonus depreciation, and the research and work opportunity tax credits.
Other items: The Act will extend unemployment insurance and many health and energy-related provisions, as well as extend farm legislation. It does not, however, extend the payroll tax cut.
There are many other provisions as part of this tax law change. But, we are pleased to have some certainty of our tax laws… at least, for now.
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