In the early morning hours of New Year’s Day, the U.S. Senate passed a bill to deal with the tax increases associated with the “Fiscal Cliff”. The House passed the same bill late last evening, and the President has said he will sign the bill into law. The law contains changes for both the year just ended and the New Year just begun. The following are the items that apply to most of our readers for the 2012 year. Our next post will detail those effective for 2013 and beyond.
Individual Changes Effective for 2012
- The Alternative Minimum Tax (AMT) has been fixed permanently to prevent middle-class taxpayers from falling into its higher tax rates. The AMT kicks in on AMT taxable income of $50,600 for individuals and $78,750 for married couples filing jointly. These amounts will be increased to match inflation.
- In addition, all personal tax credits can be used against both regular and AMT taxes going forward.
- The American Opportunity Tax Credit, which allows for up to a $2,500 Federal tax credit for the first 4 years of college expenses has been extended through 2017.
- Also, the above-the-line deduction for tuition and fees of up to $4,000 has been revived for 2012 and continues for 2013.
- The above-the-line deduction of up to $250 for elementary and secondary school teachers has been revived for 2012 and continues for 2013.
- The option to deduct state and local sales taxes in place of state and local income taxes is revived for 2012 and continues for 2013.
- The treatment of mortgage insurance premiums as deductible home mortgage interest is revived for 2012 and in place for 2013.
- Increased Earned Income Tax Credits and Child Tax Credits are extended through 2017.
- The tax credit for certain energy efficient home improvements and for energy-efficient appliances is revived for 2012 and in place through 2013.
Business Changes Effective for 2012
- The following depreciation items are made effective for equipment placed in service from January 1, 2012 through December 31, 2014
- 15-year life on qualified leasehold improvements, qualified restaurant buildings and qualified retail improvements.
- Increased Section 179 limitations and the treatment of certain real estate property as eligible for Section 179 treatment.
- The Research and Development Tax Credit is revived for 2012 and extended through 2013.
- 100% exclusion of gain from the sale of qualified small business stock is in place for shares acquired before January 1, 2014.
Now comes the scramble of the states to choose whether to go along with the changes made by the Federal government, and the IRS and tax preparation software providers to update their systems and get the changes rolled out. We’ll keep you up to date on when we can start getting 2012 tax returns prepared.