Last Updated Apr 26, 2011 5:03 PM EDT
What's in it for you?
Individual Tax Rates:Under the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), the individual income tax rates are scheduled to revert from 10, 15, 25, 28, 33, and 35 percent to 15, 28, 31, 36, and 39.6 percent after December 31, 2010. The Senate bill extends the 10-percent rate and the other reduced individual income tax rates for two years, through December 31, 2012, for all taxpayers. What does this mean? According to CCH, "Combined with the payroll tax cut (discussed below), the extension of the individual rate cuts will give many individuals a significant increase in immediate dollars available to them in 2011 over what would have resulted without a tax bill. For example, an individual earning $50,000 in 2011 will see a $1,890 tax savings in combined income tax and payroll tax rate reductions over what was scheduled under the EGTRRA sunset."
Capital Gains/Dividend Tax Cuts:Extended for two years. Capital gains will be taxed at a maximum of 15 percent (zero percent for taxpayers in the 10 and 15 percent brackets). Dividends from a regulated investment company (RIC) or real estate investment trust (REIT) will also fall into this category and be treated as a qualified dividend. This will continue until December 31, 2012.
Pease Limitation Extended:According to CCH's briefing, The "Pease" limitation (named after the member of Congress who sponsored the bill enacting it) reduces the total amount of a higher-income individual's otherwise allowable deductions. The Pease limitation is repealed for 2010 but is scheduled to return in full after 2010 under EGTRRA's sunset rules at a projected level of income starting at $169,550 ($84,775 for married couples filing separately). The Senate bill extends repeal of the Pease limitation for two years, through December 31, 2012.
Other Tax Credits Extended:Marriage Penalty Relief, Earned Income Tax Credit, Child Deduction Credit, Adoption Credit, Dependent Care Tax Credit, Employer Provided Child Care Tax Credit, American Opportunity Tax Credit, Education Assistance Exclusion, Student Loan Interest Deduction, and Coverdell Education Savings Accounts: All extended through December 31, 2012.
Payroll Tax Cut:The bill provides for a one-year payroll tax cut. It reduces the employee-share of OASDI (Social Security tax) from 6.2 percent to 4.2 percent for wages earned in calendar year 2011 up to $106,800. Self-employed individuals would pay 10.4 percent on self-employment income up to the threshold.
Extenders Relief:The Senate bill extends a number of temporary individual tax incentives which had expired at the end of 2009. These incentives, known as extenders, would be extended for two years, through December 31, 2011. The individual incentives extended by the Senate bill are: State and local sales tax deduction; Higher education tuition deduction; Teacher's classroom expense deduction; Charitable contribution of IRA proceeds; Charitable contributions of appreciated; property for conservation purpose. However, CCH notes that "The Senate bill does not extend the additional standard deduction for real property taxes, which expired at the end of 2009."
Alternative Minimum Tax (AMT) "Patch":According to CCH, the Senate bill provides an AMT "patch" intended to prevent the AMT from encroaching on middle income taxpayers by providing higher exemption amounts and other targeted relief for 2010 and 2011. Without this patch, approximately 21 million taxpayers would have been subject to the AMT. The Senate bill increases the exemption amounts for 2010 to $47,450 for individual taxpayers, and to $72,450 for married taxpayers filing jointly. For 2011, the amounts would be increased to $48,450 for individuals and $74,450 for married taxpayers filing jointly.
Estate Tax:A top federal estate tax rate of 35 percent with a $5 million exclusion, adjusted for inflation for anyone dying after 2011 (in 2012). For 2010, EGTRRA repeals the stepped-up basis rules and replaces them with a modified carryover basis regime. The Senate bill revives the traditional stepped-up basis regime for all assets included in the gross estate for decedents dying on or after January 1, 2011 and on or before December 31, 2012. Under the stepped-up basis rules, the income tax basis of property acquired from a decedent at death generally is stepped up (or stepped down) to its value as of the date of the decedent's death (or the estate tax alternate valuation date, if elected).
How Much Will The Tax Relief Job Creation Act of 2010 Cost?About $850 billion will be injected into the economy and the measure is supposed to add almost $1 trillion to the deficit.
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Ilyce R. Glink is the author of several books, including 100 Questions Every First-Time Home Buyer Should Ask and Buy, Close, Move In!. She blogs about money and real estate at ThinkGlink.com and The Equifax Personal Finance Blog, and is Chief Content Strategist at RealtyJoin.com, a community for real estate investors.