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Relief Act

On January 7, 2013 posted in IRS Information, IRS Representation Blog
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Relief Act

The Senate by a vote of 89-8, passed H.R.8, the American Taxpayer Relief Act. The House has passed H.R.8 last night by a vote of 267-167.  This bill will prevent many of the tax hikes that were scheduled to go into effect January 1, 2013 and retain many favorable tax breaks that were scheduled to expire.  However, it will increase income taxes for some high-income individuals and increase transfer tax rates (estate taxes).  The 2% payroll was not extended, so taxes on all W-2 employees will be increased.

 

In the days ahead, we will watch the details and keep you informed of any changes.  Both parties are still calling for tax reform and deficit reduction actions to be immediately considered once the 113th Congress.  While much of this is political posturing, we do believe with the size of the deficits and debts, changes will occur.

 

Following are some of the key features of H.R.8, the American Taxpayer Relief Act:

 

Income taxes. 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 heads of household).  Income above these levels will in 2013 be taxed at a 39.6% rate.

 

AMT patch. The Act would permanently patch the alternative minimum tax (AMT), which means it will be adjusted to current dollar levels.

 

Capital gains and dividends. The Act would raise the top rate for dividends and capital gains from 15% to 20% for taxpayers who would be subject to the new 39.6% bracket.

 

Deduction limitations for high-income individuals. The Act would reinstate the phase out levels for personal exemptions and itemized deductions (referred to as “Pep and Pease”) for taxpayers exceeding certain income thresholds.

 

Transfer taxes. The Act would 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 would 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 would be extended including depreciation provisions, notably including bonus depreciation, and the research and work opportunity tax credits.

 

Other items. The Act would extend unemployment insurance and many health and energy-related provisions, as well as provide a doc fix and extend farm legislation. It would not, however, extend the payroll tax cut. The Act would push consideration of the sequester down the road for a few months.