New Tax Relief/Job Creation Act of 2010 bill extends Bush-era tax cuts, provides payroll tax relief, and reinstates the estate tax.
The bill extends these provisions, which had expired on December 31, 2009:
- State & local sales tax deduction
- Higher education tuition deduction
- $250 above-the-line teacher’s classroom expense deduction
- Charitable contributions of IRA
- Charitable contributions of appreciated property for conservation purposes
(Note: the additional standard deduction for property tax was not extended.)
The bill provides an AMT patch. The exemption amounts for 2010 and 2011 are:
|Single/Head of Household
|Married filing joint/surviving spouse
|Married filing separate
In addition, nonrefundable personal credits can be applied against AMT for two more years.
Here is a partial list of extensions of current law (these changes are effective through 2011 unless otherwise noted):
- 2010 individual tax rates (effective through 2012)
- 2010 rates on dividends and capital gains (effective through 2012)
- No phase-out of itemized deductions or personal exemptions
- Increased standard deduction and 15% bracket for married couples
- $1,000 Child Tax Credit will continue
- Earned Income Tax Credit enhancements
- Maximum expenses for the Child and Dependent Care Credit remain at $3,000/$6,000
- Deduction of mortgage insurance premiums
- American Opportunity Tax Credit
- Exclusion for employer educational assistance
- Student loan interest deduction
- Increased contributions to Coverdell Education Savings Accounts
- Adoption Credit and exclusion for employer adoption assistance
Payroll Tax Cut
The Act reduces the employee-share of the OASDI portion of Social Security tax from 6.2% to 4.2% for wages earned in calendar year 2011, up to the taxable wage base of $106,800. This reduction applies to all wage earners and self-employed individuals with no reduction for income (i.e., no AGI phase-outs).
The Act provides the following business incentives:
- 100% bonus depreciation for investments made after September 8, 2010, and before January 1, 2012
- The §179 threshold will be $125,000/$500,000 for tax years beginning in 2012 (the limits are set at $500,000/$2 million for 2010 and 2011 under SBJA)
- Extension of the R&D credit
- Extension of the 100% small business stock exclusion
- Extension of transit benefits
- Extension of a number of business extenders
Many business energy incentives were extended, and the individual credit for energy efficiency improvements was also extended. However, the amount allowed returns to the pre-2009 lifetime limit of $500 (rather than the 2009/2010 maximum of $1,500).
The federal estate tax exemption is increased to $5 million with a maximum rate of 35% for 2011 and 2012. For decedents dying in 2010, the executor may elect to use the $5 million exemption and 35% rate, or the no estate tax and carryover basis provisions under EGTRRA.
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