American Taxpayer Relief Act of 2012

I put together a presentation today about the American Taxpayer Relief Act of 2012. I wanted to share some highlights of the changes that occurred with this new regulation. The Act was signed into law by President Obama on Jan. 2, 2013. It prevented many of the tax hikes that were scheduled to go into effect this year and retain many favorable tax breaks that were scheduled to expire. It will also increase income taxes for some high-income individuals. Further, it extends a bunch of expired and expiring tax breaks for businesses and individuals.

Top tax rate increased to 39.6% from 35% for taxpayers making:
• $450,000 for joint filers and surviving spouses
• $425,000 for heads of household
• $400,000 for single filers
• $225,000 for married taxpayers filing separately

Raised the top rate for capital gains and dividends to 20% (up from 15%) for taxpayers making:
• $450,000 for joint filers and surviving spouses
• $425,000 for heads of household
• $400,000 for single filers
• $225,000 for married taxpayers filing separately

Also note that the 2010 Health Care Reconciliation Act includes an additional 3.8% tax on net investment income for joint filers and surviving spouses making $250,000 and single filers making $200,000.

Reinstated personal exemption phaseouts for higher income taxpayers. Under the Personal Exemption Phaseout, the total amount of exemptions that can be claimed by a taxpayer subject to the limitation is reduced by 2% for each $2,500 (or portion thereof) by which the taxpayer’s AGI exceeds the applicable threshold (Inflation adjusted)
• Applicable thresholds (Inflation adjusted for tax years after 2013)
• $300,000 for joint filers and a surviving spouse
• $275,000 for heads of household
• $250,000 for single filers
• $150,000 for married taxpayers filing separately

Extended for five years the following items that were originally enacted as part of the American Recovery and Investment Tax Act of 2009
• American Opportunity tax credit
– Permits eligible taxpayers to claim a credit equal to 100% of the first $2,000 of qualified tuition and related expenses, and 25% of the next $2,000 of qualified tuition and related expenses (for a maximum tax credit of $2,500 for the first four years of post-secondary education)
• Refundable child credit
– Eased rules for qualification
• Earned income tax credit
– Various changes related to higher EITC amounts for eligible taxpayers with three or more children
– Increased in threshold phaseout amounts for singles, surviving spouses, & heads of households

Retained $5 million exemption amount for estate and gift taxes with slight rate increases
• Prevented steep increases in estate, gift and generation-skipping transfer 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)

Permanently increased in the top estate & gift tax rate
• Rate increased from 35% to 40%

Extended and modified depreciation provisions
• Extended and modified the 50% bonus depreciation provisions for one year for qualified property placed in service before 2014

These are some of the more relevant items from the American Taxpayer Relief Act of 2012 which I wanted to highlight. If you have any additional comments or questions, please feel free to post a comment or contact me.

2 thoughts on “American Taxpayer Relief Act of 2012

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