Tax Rules Extended by ATRA

January 12, 2013

The American Taxpayer Relief Act of 2012 provides “taxpayer relief” primarily by extending tax benefits that were scheduled to expire. Here is a list of the extensions that are of most interest to individual taxpayers. Changes labeled “permanent” can be altered by an Act of Congress but will not expire automatically.

Tax rates

Changes in the tax rate structure are permanent, preserving the 10% bracket and marriage penalty relief in addition to reduced tax rates in other brackets, except for those with income above $400,000. details

Also permanent are the 0% rate for capital gain and qualified dividend income below the 25% tax bracket and the 15% rate for these items up to the same level where the 39.6% income tax rate kicks in. details

The alternative minimum tax (“AMT”) is permanently indexed for inflation. details

Deductions reduced

ATRA permanently protects taxpayers below certain income levels from the “PEP and Pease” rules, but leaves them in place for higher-income taxpayers.

Children

Enhancements to certain benefits for taxpayers with children were scheduled to expire and have been made permanent. These include a more generous child tax credit, dependent care credit, adoption tax credit and credit for employer expenses for child care assistance.

Education benefits

Various benefits that previously had expiration dates were made permanent, including expanded Coverdell accounts, expanded exclusion for employer-provided educational assistance, and expanded student loan interest deduction. The American Opportunity Tax Credit is extended through 2017, and the above-the-line deduction for qualified tuition-related expenses is extended through 2013.

Estate and gift tax

The indexed $5,000,000 exemption amount is made permanent with a tax rate of 40%. Also made permanent are portability of a deceased spouse’s unused exemption amount and “reunification” of the exemption amount for gifts and estates.

Individual extenders

A raft of other individual tax benefits that would otherwise have expired are extended, including:

  • Exclusion from income for mortgage debt forgiven, through 2013
  • Treat PMI (mortgage insurance) as qualified residence interest, through 2013
  • Deduction of state and local sales tax, through 2013
  • Qualified charitable distributions from IRAs, through 2013 (with a special transition rule) details

Other extenders

ATRA extends numerous other tax benefits categorized as business tax extenders or energy tax extenders.