Certified Public Accountants

Highlights of the 2010 Tax Act

On December 17, 2010, the President signed the Tax Relief, Unemployment insurance Reauthorization and Job Creation Act of 2010.  The law extends current law for an additional 2 years and relaxes estate and gift tax rules, grants all workers a temporary payroll tax cut and extends various temporary tax provisions.


Income Tax Rates

· The current income tax rates are extended for 2011 and 2012, with the top rate on ordinary income at 35%. 

· The maximum capital gain and qualified dividend rate of 15% is extended through 2012.

· The alternative minimum tax (AMT) exemption is extended through 2012.  Without the AMT extension, an estimated 20 to 28 million taxpayers would have paid the alternative minimum tax.   The AMT was originally enacted in 1969 to ensnare a few very high-income taxpayers, but it was not indexed for inflation.  The AMT now impacts some Taxpayers with taxable income as low as $75,000.


Estate and Gift Tax Provisions

· The estate, gift and generation skipping transfer tax exemptions increase to $5 million dollars for gifts made and taxpayers dying in 2011 and 2012.  The gift tax exemption now moves in conjunction with the estate tax exemption beginning in 2011, which is a departure from prior law.

· The maximum estate, gift and generation skipping transfer tax rate is set at 35% for the above transfers.

· The complex carryover basis rules are repealed for taxpayers dying after 2010 and a special election can be made for taxpayers dying in 2010:  Election for either (a) no estate tax with a limited basis step- up, or (b) estate taxation at a 35% rate and a $5 million exemption (and a basis step-up).

· The law also includes a "portability" provision, which will permit a decedent's unused exemption to be added to and used by a surviving spouse beginning in 2011.  In general, the unused exemption can be used by a surviving spouse during the surviving spouse's lifetime for gifts, or can be available at death for estate tax purposes.  The portability provision is only available during the surviving spouse's lifetime if a timely election is made on the predeceased spouse's estate tax return.  The portability provision is not applicable to a decedent's unused generation skipping tax exemption. 

· All of the above changes will once again sunset after 2012, and will usher in a 55% estate tax rate with a $1 million exemption.




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Highlights of the Tax Relief, Unemployment Insurance

 and Job Creation Act of 2010

Date: 12/28/2010