Last week we covered the changes for the 2012 tax year created by the bill to avoid the tax portion of the fiscal cliff. This week we’ll cover the changes that apply for 2013 and years after, as well as some of the less common provisions of the bill.
Tax Rates and Deductions
Beginning with the 2013 tax year, the following changes have been made to the individual tax rates, deductions and exemptions.
Tax Rates. Starting with 2013, income over $400,000 for single people and $450,000 for married couples will be taxed at 39.6% rather than the old 35% maximum rate. All other tax rates are unchanged.
Capital Gain and Dividend Rates. The top tax rate for this income moves from 15% to 20%, with the 20% rate applying to single filers with more than $400,000 and $450,000 for married couples. Those in the 10% and 15% brackets will continue to see this income taxed a 0%.
Those in a 25% or greater bracket, but with incomes less than the thresholds mentioned above will see a tax rate of 15%.
This is in addition to the 3.8% Medicare Surtax applied to investment income of those with $200,000 single or $250,000 married filing joint or more under the Affordable Care Act.
Deductions and Exemptions. For taxpayers with incomes above $250,000 single or $300,000 married filing joint, the following changes are effective for 2013 and years after:
- Personal exemptions will be reduced by 2% for each $2,500 of income above the threshold amounts.
- Itemized deductions will be reduced by 3% of the amount of income over the threshold amounts, with the maximum reduction not exceeding 80% of itemized deductions.
Estates and Gifts
The estate exemption is permanently increased to $5 million and indexed for inflation, and the portability of unused exemption amounts from one spouse to another is continued. The top tax rate for estates and gifts increases from 35% to 40%. These provisions are in place for deaths and gifts occurring after 2012.
Debt Discharge Income
The exclusion of up to $2 million of debt discharge income related to a principal residence is also extended through the end of 2014.