Changes in the Law
Tax Relief, Unemployment Insurance
Reauthorization, and Job Creation Act of 2010
We all knew that a variety of tax provisions would sunset at the end of 2010 unless Congress and the President could compromise, and on December 17th, 2010, President Obama inked the deal. Here are a few highlights of what we can expect for the next two years:
The estate tax exemption was raised to $5,000,000, with the top rate set at 35%. The exemption is indexed to inflation for 2012.
Portability: Unused federal estate tax exemptions of those who die in 2011 and 2012 are “portable” which means that the surviving spouse may use it if an election is made on the timely filed federal estate tax return of the pre-deceased spouse, regardless of whether the estate would have otherwise had to file a return.
Step-up in basis: The confusing modified carryover basis rules of 2010 are gone. Unlimited step-up in basis returns on inherited assets.
Gift tax: In addition to the annual gift tax exclusion ($13,000 per year per donee), now a person may choose to use part or all of that $5,000,000 estate tax exemption during life by making gifts of up to $5,000,000 without having to pay gift tax.
Choice for 2010: Estates of those who died in 2010 have a choice; they can elect to apply either: the 2010 rules and take advantage of no estate tax but limited step-up in basis; or the new tax law and be subject to the estate tax for assets exceeding the $5,000,000 exemption but enjoying unlimited step-up in basis.
Existing favorable income tax rates were extended for a period of two years, including the 15% capital gains rate.
The payroll tax was decreased by 2% for one year, bringing the rate from 6.2% to 4.2% for employees, and from 12.4% to 10.4% for those who are self employed.
The Alternative Minimum Tax patch is extended through 2011.
Those who are 70 ½ or older may direct up to $100,000 of their required minimum distributions for 2010 and 2011 from traditional IRA’s to charity and exempt those distributions from income.
Businesses may write off 100% of the cost of qualified property (like new equipment and machinery) purchased between September 8, 2010 and December 31, 2011. There is a 50% depreciation deduction for property purchased and placed in service in 2012. Businesses may also choose to deduct immediately the cost of qualifying property instead of depreciating it over several years.