- On January 1, 2013 by a vote of 89 to 8, (HR 8) was approved by the Senate
- On January 3, 2013 by a vote of 257 to 167 was approved by Congress.
ATRA 2012: (modification of §1)
- allows the 2001 and 2003 tax rates to sunset after 2012 for individuals with incomes over $400,000 and families with incomes over $450,000;
- permanently “patches” the alternative minimum tax (AMT); and
- provides for a maximum estate tax of 40 percent with a $5 million exclusion.
- makes permanent income tax rates for all, except for taxpayers with taxable income above $400,000 ($450,000 for married taxpayers, $425,000 for heads of households). Income above these levels will be taxed at a 39.6 percent rate.
- Individual marginal tax rates of 10, 15, 25, 28, 33, and 35 are permanent, but with an additional 39.6 percent rate carved out from the old 35 percent bracket range.
- The new law directs that the $450,000/$400,000 beginning of the 39.6 percent bracket be adjusted for inflation after 2013 based upon the standard formula of Code Sec. 1(f).
Trusts and estates. That top rate increases to 39.6 percent and applies to the entire 35-percent bracket range end and, is projected to begin in 2013 in excess of $11,950.
- ATRA 2012 extends all existing marriage penalty relief.
Capital Gains/Dividends Rates (modification of §1)
The top rate for capital gains and dividends raises to 20% and will apply to the extent that a taxpayer’s income exceeds the thresholds set for the 39.6 % rate.
All other taxpayers will continue capital gains and dividends tax at a maximum rate of 15 percent. A zero percent rate will also apply to capital gains and dividends to the extent income falls below the top of the 15 percent bracket $72,500.
The 28% and 25% tax rates for collectibles and un-recaptured Code Sec. 1250 gain, continue unchanged.
AMT – Alternative Minimum Tax (modification of §55(d))
ATRA 2012 permanently “patches” the AMT by increasing the exemption amounts and provides for an annual inflation adjustment.
The 2012 AMT exemption amounts are increase to:
- $50,600 for unmarried individuals;
- $78,750 for married taxpayers filing jointly.
ATRA 2012 revives modified “Pease” limitations on itemized deductions. (modification of §68)
- However, higher “applicable threshold” levels apply under the new law:
- $300,000 for married couples and surviving spouses.
- $275,000 for heads of household
- $250,000 for unmarried taxpayers; and
- $150,000 for married taxpayers filing separately.
ATRA 2012 also reinstates the personal exemption phase (PEP) out rules. (modification of §151)
$300,000 for married couples and surviving spouses
- $275,000 for heads of household
- $250,000 for unmarried taxpayers; and
- $150,000 for married taxpayers filing separately
The total amount of exemptions that may be claimed by the taxpayer is reduced by two percent (2%) for each $2,500, or portion thereof by which the taxpayer’s adjusted gross income exceeds the applicable threshold.
Estate Tax Portability
ATRA 2012 makes permanent “portability” between spouses.
- Portability allows the estate of a decedent who survived by a spouse to make a portability election to permit the surviving spouse to apply the decedent’s unused exclusion (DSUE) to the surviving spouse’s own transfers during life and at death.
ATRA 2012 provides a 40 percent tax rate and a unified estate and gift tax exemption of $5 million (inflation adjusted).
Retirement Savings (modification of §401)
ATRA 2012 lifts most restrictions, and now allows participants in 401(k) plans with in-plan Roth conversion features to make transfers to a Roth account at anytime
Child Tax Credit (modification of §24(b))
ATRA 2012 extends permanently the $1,000 child tax credit.
The provision that reduces the earnings threshold for the refundable portion of the child tax credit to $3,000 is extended through 2017.
State and Local Sales Tax Deduction (modification of §164(b)(50))
ATRA 2012 extends through 2013 the election to claim an itemized deduction for state and local general sales taxes in lieu of state and local income taxes.
Earned Income Credit (modification of §32(b)(3))
ATRA makes permanent or extends through 2017 enhancements to the EIC :
- including a simplified definition of earned income,
- reform of the relationship test and
- modification of the tie-breaking rule.
Other Child-Related Tax Relief (modification of §23(b)& (c))
The ATRA extends permanently enhancements to the adoption credit and the income exclusion for employer-paid or reimbursed adoption expenses up to $10,000.
Child and Dependent Care Credit (modification of §21)
ATRA extends permanently enhancements to the child and dependent care credit. The current 35 percent credit rate is made permanent along with the $3,000 cap on expenses for one qualifying individual and the $6,000 cap on expenses for two or more qualifying individuals.
The credit is reduced by one percentage point for each $2,000 of AGI, or fraction thereof, above $15,000 through $43,000. Taxpayers with AGI over $43,000 are allowed a credit equal to 20 percent.
Employer-Provided Child Care Credit (modification of §129)
- ATRA 2012 extends permanently the credit for employer-provided child care facilities and services.
American Opportunity Tax Credit (modification of §25A)
- ATRA 2012 extends through 2017 the American Opportunity Tax Credit (AOTC).
The AOTC tax credit of 100 percent of the first $2,000 of qualified tuition and related expenses and 25 percent of the next $2,000, for a total maximum credit of $2,500.
Deduction For Qualified Tuition And Related Expenses (modification of §222) “above the line”
- ATRA 2012 extends until December 31, 2013 the above–the-line deduction for qualified tuition and related expenses.
- The bill also extends the deduction retroactively for the 2012 tax year.
Student Loan Interest Deduction (modification of §221)
ATRA permanently suspends the 60-month rule for the $2,500 above-the-line student loan interest deduction. The Act also expands the modified adjustment gross income range for phase-out deduction.
Coverdell Education Savings Account (modification of §530)
ATRA 2012 permanent enhancements include a $2,000 maximum contribution amount and treatment of elementary and secondary school expenses as well as post-secondary expenses as qualified expenditures.
Employer-Provided Education Assistance (modification of §127)
ATRA 2012 extends permanently the exclusion of employer-provided education assistance up to $5,250.
Teachers’ Classroom Expense Deduction (modification of §62)
ATRA 2012 extends through 2013 the teacher’s classroom expense deduction. The deduction, allows qualified expenses up to $250 paid out-of-pocket during the year
Exclusion Of Cancellation Of Indebtedness On Principal Residence (modification of §108(c))
Cancellation of indebtedness income in this provision excludes from income cancellation of mortgage debt on a principal residence of up $2 million through 2013.
Mortgage Insurance Premiums (modification of §163)
The provision treats mortgage insurance premiums as deductible interest that extends this provision through December 31, 2013.
IRA Distributions to Charity (modification of §408(a))
ATRA 2012 extends for two years, through December 31, 2013, the provision allowing tax-free distributions from individual retirement accounts to public charities, by individuals age 70 ½ or older, up to a maximum of $100,000 per taxpayer each year.
The Ac ATRA 2012 provides special transition rules. One rule allows taxpayers to recharacterize distribution made in January 2013 as made on December 31, 2012. The other rule permits taxpayers to treat a distribution from the IRA to the taxpayer made in December 2012 as a charitable distribution, if transferred to charity before February 1, 2013.
Energy Credits For Individuals (Modification of (§25C))
- The credit is available to individuals who make energy efficiency improvements to their existing residence.
- The lifetime credit limit is $500 ($200 for windows and skylights) under the 2010 Tax Relief Act.
ATRA 2012 extends the credit at the $500 level through December 31, 2013.
Business Tax Provisions
Code Sec. 179 Depreciation (§179)
- dollar limit for tax years 2012 and 2013 is $500,000 with a $2 million investment limit.
Bonus Depreciation (§168(k))
ATRA 2012 extends 50 percent bonus depreciation through 2013. Some transportation and longer period production property is eligible for 50 percent bonus depreciation through 2014.
Research Credit (§41)
- known as the Research & Experimentation Tax Credit or the R&D Tax Credit is a general business tax credit for companies that are incurring R&D expenses in the United States.
New Markets Tax Credit (§45D)
- The (NMTC) Program was established in 2000 as part of the Community Renewal Tax Relief Act 2000. The goal of the program is to spur revitalization efforts of low-income and impoverished communities across the United States and Territories.
- The NMTC Program provides tax credit incentives to investors for equity investments in certified Community Development Entities, which invest in low-income communities. The credit equals 39% of the investment paid out (5% in each of the first three years, then 6% in the final four years, for a total of 39%) over seven years (more accurately, six years and one day of the seventh year) . A Community Development Entity must have a primary mission of investing in low-income communities and persons
Employer wage credit for empoyees who are active duty military personnel (H.E.A.R.T. act of 2008)
- Differential wage payments are those payments provided by an employer to employees on active military duty, to make up some or all of the wages the employee would have received if he or she were working for the employer.
- An employer may receive a tax credit for differential wage payments made to qualified employees who have been called to active military service. The credit is 20% of the first $20,000 of qualified differential wage payments made to each qualified employee.
Extension of the Work Opportunity Tax Credit WOTC (§190)
known as the Research & Experimentation Tax Credit or the R&D Tax Credit is a general business tax credit for companies that are incurring R&D expenses in the United States.
15 Year Straight Line Cost Recovery for : (§168 (e))
Qualified Leasehold Improvements
Qualified Restaurant Buildings
Qualified Retail Improvements
Enhanced charitable deduction for contributions of food inventory by businesses (§170(e)(3))
Exclusion of 100% of gain on certain small business stock (§1202)
Basis adjustment to stock of an S Corporation making charitable contributions of property. (§1367)
Reduced S-Corp recognition of Built-In-Gain holding period (BIG tax) (§1374)