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Tax
relief legislation
The new 2010
Tax Relief Act extends
tax breaks for individuals and businesses, provides a payroll tax
cut, and temporarily restores the estate tax with a top rate of 35%.
Here's an overview of several key provisions in the law.
Individual
tax rates: The
new law extends individual tax rates in effect for 2010 through the
next two years. Therefore, the top tax rate remains at 35%.
Higher
education credit: Recent
enhancements to the American Opportunity Tax Credit (AOTC), which
were scheduled to expire after 2010, have been extended through
2012. The maximum AOTC remains at $2,500, but it is phased out for
higher-income taxpayers.
Capital
gains and dividends: The
maximum 15% tax rate on long-term capital gains and qualified
dividends (0% for low-income taxpayers) is extended through 2012.
Payroll
tax cut: Normally,
employees pay a 6.2% social security tax on wages up to an annual
base ($106,800 for 2011). The new law reduces this tax for employees
to 4.2% for 2011. Self-employed individuals will pay a 10.4% tax
(instead of 12.4%) on self-employment income up to $106,800.
Estate
tax relief: After
the one-year repeal for 2010, the federal estate tax was scheduled to
return in 2011 with a 55% top rate and an exclusion amount of $1
million. The 2010
Tax Relief Act retroactively
establishes a $5 million exemption and a top estate tax rate of 35%
for 2010 through 2012. It also allows portability of exemptions for
couples, removes modified carryover basis rules for heirs, and
reunifies the estate and gift tax systems.
Itemized
deductions and personal exemptions: Reductions
in itemized deductions and personal exemptions for higher-income
taxpayers were repealed in 2010, but were scheduled to return in
2011. The new law extends the repeals through 2012.
Bonus
depreciation: Under
a prior tax law, 50% bonus depreciation was reinstated for qualified
business property placed in service in 2010 (through 2011 for certain
property). The Tax
Relief Act
authorizes 100% bonus depreciation for qualified property placed in
service from September 9, 2010, through 2011 (through 2012 for
certain property).
Alternative
minimum tax: The
new law again "patches" the alternative minimum tax (AMT)
by increasing exemption amounts for 2010 and 2011. Without the
changes, the AMT exemption amounts would have dropped to pre-2001
levels.
Individual
extenders: The
new law retroactively extends from January 1, 2010, through 2011
several provisions that had expired after 2009. The items include the
following:
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