American Taxpayer Relief Act

On January 1, Congress passed the American Taxpayer Relief Act. It approved a variety of extensions and modifications. Here are a few of the most general extensions for both business and personal tax.


 Section 179. The Act extended increased expensing limitations and treatment of certain real property as section 179 property. In addition, the Act extended and modified bonus depreciation.

Charitable Donations. The Act approved another extension, this time of enhanced charitable deduction for contributions of food inventory. Also, the Act extended basis adjustment to stock of S corporations making charitable contributions of property.


Individual Rate Changes. While taxes for individuals paying at the 10, 15, 25, 28, 33, and 35 percent rate will remain unchanged, a new 39.6 percent rate now applies to joint filers and surviving spouses making more than $450,000, heads of households making more than $425,000, single filers making more than $400,000, and married couples filing separately who make more than $225,000.

Capital Gains and Dividend Earnings. Taxes on capital gains, including profit realized on the successful sale of a business or on dividends for investors will also be increasing for some earners. The new Act permanently raises the tax rate to 20 percent for individuals with incomes exceeding $400,000 or married filers exceeding $450,000. That tax rate rises to 23.8 percent after adding a Medicare surtax on investment income.

Estate and Gift Tax. These rates will be raised for those at the upper end of the spectrum. The top estate, gift, and generation-skipping-transfer (GST) rate will be permanently raised from 35 to 40 percent for individuals dying and gifts given after 2012. In addition, the Act sets the exemption above which that tax must be paid at $5 million.

Limits on itemized deductions. Itemized deductions will be reduced by 3 percent of the amount by which each taxpayer’s AGI exceeds the thresholds established under the personal exemption phaseout.

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