The American Taxpayer Relief Act averts the United States’ descent over the “fiscal cliff” — a combination of higher taxes and forced spending cuts scheduled to go into effect in 2013. The act prevents income tax rate increases for about 98% of taxpayers and makes other changes affecting individuals and businesses. Here’s a brief summary of the most important provisions.
Individual tax provisions
- Makes permanent 2012 ordinary-income tax rates, ranging from 10% to 35%
- Increases the top marginal tax rate to 39.6% on taxable income in excess of the applicable threshold of $400,000 (singles), $425,000 (heads of households) or $450,000 (married filing jointly)
- Allows the scheduled 2013 return of the limits on certain itemized deductions and personal exemptions — setting limit thresholds of $250,000 (singles), $275,000 (heads of households) and $300,000 (married filing jointly)
- Makes permanent 2012 long-term capital gains rates of 0% and 15%
- Increases long-term capital gains rate to 20% for taxpayers with taxable income exceeding $400,000 (singles), $425,000 (heads of households) or $450,000 (married filing jointly)
- Makes permanent long-term capital gains treatment for qualified dividends
- Makes permanent (and retroactive to Jan. 1, 2012) alternative minimum tax (AMT) relief
- Extends the deduction for state and local sales tax in lieu of state and local income tax
- Extends various child- and education-related credits and deductions
- Extends the ability of taxpayers age 70½ or older to make a direct tax-free rollover from an IRA to charity
- Extends certain home and energy-related breaks
- Increases the top estate tax rate to 40%
- Maintains the estate tax exemption amount at $5 million, inflation-adjusted annually
Business tax provisions
Several valuable tax breaks for businesses have been extended, such as:
- Bonus depreciation
- Enhanced Section 179 expensing
- Accelerated depreciation for qualified leasehold, retail and restaurant improvements
- The Work Opportunity credit
- The research and development credit
- Certain energy-related breaks
The impact on you
We’ve touched on only some of ATRA’s numerous provisions here. For more detailed information, read this special report. In addition, many breaks are subject to a variety of rules and limitations. If you have questions on exactly how they’ll affect you, call us. We’d be pleased to help.
