ATRA Act of 2012 (Update)

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The above captioned Act was passed by both houses on January 1, 2013, averting the much ballyhooed “fiscal cliff.”  It became law on January 2, 2013.


SUMMARY


ATRA extends the Bush era tax rates, and provides as follows:


INCOME TAXES:

  1. A 39.6% tax rate, (up from 35%) for incomes above $400,000 for individuals, $425,000 for heads of household, and  $450,000 for married persons filing jointly.
  2. The 2% Social Security reduction is gone, and the employer Social Security tax rate increases to 6.2% with an additional Medicare tax for earnings over $200,000.
  3. A permanent AMT adjustment for inflation is enacted retroactive to 2012.
  4. The maximum capital gains tax will raise from 15% to 20% for individuals taxed at the 39.6% rate (those making $400,000, $425,000, or $450,00, depending on filing status).
  5. The itemized deduction and personal exemption phase-outs will be reinstated, with different Adjusted Gross Income starting thresholds, adjusted for inflation as follows: $300,000 for those married persons filing jointly, $275,000 for heads of households, and $250,000 for single persons.
  6. Personal tax credits, such as the $1000 child tax credit, the enhanced Earned Income Tax Credit, and the American Opportunity Tax Credit are extended through2017.
  7. The following other personal deductions and exclusions are extended through 3013:


–    Discharge of the qualified principal residence exclusion,
–    The $250 above the line teacher deduction,
–    Treatment of mortgage insurance premiums as residence interest,
–    Deduction for state and local taxes,
–    Above-the-line tuition deductions, and
–    The IRA-to-charity exclusion, plus special provisions allowing transfers made in January 2013 to be treated as made in 2012.


BUSINESS PROVISIONS:

  1. The research credit and the production tax credits will be extended through 2013, with other such credits.
  2. For qualified real property, the 15 year depreciation and §179 expensing will be allowed on qualified real property through 2013.
  3. The Work Opportunity Credit is extended through 2013.
  4. Bonus depreciation is also extended throught 2012.
  5. The §179 deduction limitation is $500,000 for 2012 and 2013.


ESTATE TAXES:  The Estate Tax regime will continue to provide an inflation adjusted $5,000,000 exemption, but will be applied at a higher 40% tax rate, up from 35% in 2012.  Effectively, this means a $10,000,000 exemption for married couples.