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Two years ago, President Obama passed the 2010 Tax Relief Act, which extended the Bush-Era tax cuts along with the tax extenders. Now these are scheduled to sunset after 2012, and whether or not any or all will be extended remains uncertain. Here are some of the provisions that are set to expire:
Income Tax Rates for Individuals - Unless extended, the individual tax rates, currently at 10, 15, 25, 28, 33, and 35 percent, are scheduled to revert to 15, 28, 31, 36, and 39.6 percent, effective for tax years beginning after December 31, 2012.
Marriage Penalty Relief - Currently, the basic standard deduction for a married couple filing jointly is twice that of an unmarried individual filing a single return. Also, the size of the 15 percent income tax bracket for a married couple filing a joint return is twice the size of the corresponding rate bracket for a single individual. If marriage penalty relief is not extended, the standard deduction and the upper limit of the 15 percent tax bracket for married couples will be 167 percent of the amounts for singles rather than 200 percent.
Pease Limitation - The currently eliminated "Pease" limitation on itemized deductions, named after the member of Congress who sponsored the original provision, is scheduled to be revived after 2012. The Pease limitation reduces the total amount of a higher-income taxpayer's otherwise allowable itemized deductions by three percent of the amount by which the taxpayer's adjusted gross income exceeds an applicable threshold.
Personal Exemption Phaseout - Higher income taxpayers may see their deduction for personal exemptions reduced or eliminated under the personal exemption phaseout rules, should the phaseout be revived after 2012.
Child Tax Credit - The $1,000 child tax credit under current law is set to revert after 2012 to $500 per qualifying child (dependent under age 17 at the close of the year).
Capital Gains - The 2010 Tax Relief Act extended the reduced maximum tax rate of 15 percent on adjusted net capital gains through 2012 (zero percent for taxpayers in the 10 and 15 percent bracket). Without an extension, the maximum rate will revert to 20 percent (10 percent for taxpayers in the 15 percent bracket) after 2012. In addition, long-term gain on the sale or exchange of property held for more than five years generally will be taxed at 18 percent (8 percent for taxpayers in the 15 percent bracket).
Dividends - Currently, qualified dividends are taxed at the preferential capital gain rates as noted above. Without an extension, qualified dividends will be taxed at the applicable ordinary income tax rates after 2012 (with the highest rate scheduled to be 39.6%).
Alternative Minimum Tax - For several years, tax laws have enacted so called AMT "patches", which increased exemption amounts for the growing number of taxpayers subject to the AMT. The most recent patch, in the 2010 Act, expired after 2011. For 2012, the exemption amounts, unless changed by Congress during the year, drop from $48,450 to $33,750 for single individuals, and from $74,450 to $45,000 for joint filers.
Education Sunsets - Several education-related tax incentives are scheduled to expire, or be significantly reduced, after 2012. These include Coverdall Education Savings Account contributions, Educational Assistance Exclusion, Higher Education Tuition Deduction, and American Opportunity tax credit.
Estate Tax Rates/Exclusion Amount - The 2010 Tax Relief Act provides for a maximum estate tax rate of 35 percent for decedents dying after December 31, 2009 and before January 1, 2013, and an applicable exclusion amount of $5 million. Without any extension, the maximum Federal estate tax rate is scheduled to revert to 55 percent after 2012 with an applicable exclusion amount of $1 million.
Gift Tax - The 2010 Act also provided that for gifts made after December 31, 2010, the gift tax is reunified with the estate tax, with a tax rate through 2012 of 35 percent and an applicable exclusion amount of $5 million.
Other Sunsetting Provisions - Bush-Era provisions are not the only tax benefits scheduled to expire after 2012 (or that already expired after 2011). Among these provisions are the following:
- Payroll tax cut
- 100 percent bonus depreciation
- Enhanced code section 179 expensing
- Research credit
- State and local sales tax deduction
- Teacher's classroom expense deduction
- Exclusion for charitable contributions of IRA proceeds
- Mortgage insurance premium deduction
- Energy tax incentives
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beautiful weather. Plant some flowers, take a walk on the beach, play ball with the kids, or play golf with friends. Whatever your spring activities include, we hope you enjoy them.
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