Tax Relief Act of 2010 - Summary of Key Provisions
Published Dec. 22, 2010
After much political controversy, Congress approved and President Obama signed the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (Tax Relief Act of 2010). The new law extends a multitude of expiring statutes, the most significant of which being the Bush-era individual and capital gain/dividend tax cuts which were extended for two years. From a business perspective, the new bill also provides for 100 percent bonus depreciation through 2011 and 50 percent bonus depreciation for 2012. It also provides an individual AMT “patch,” a one-year, 2-percent payroll tax cut and revives the estate tax with a top federal tax rate of 35 percent and a $5 million exclusion.
Below is a brief summary of the key provisions. If BMF can answer any questions about how these provisions apply to you and/or your business, please contact us.
Highlights for Businesses
- Bonus depreciation – Businesses can write off 100 percent of their machinery and equipment purchases, effective for property placed in service after Sept. 8, 2010 and through Dec. 31, 2011. For property placed in service in 2012, the law returns to 50 percent bonus depreciation.
- Section 179 expensing – Expensing limit is increased to $125,000 (indexed for inflation) for 2012 with the phase-out beginning at $500,000.
- Extenders (through 2011 unless otherwise indicated)
- Research and development credit reinstated retroactively for expenditures incurred after Dec. 31, 2009 but before Dec. 31, 2011
- Accelerated depreciation for qualified leasehold-improvement, restaurant and retail-improvement property
- Provision to elect to accelerate and use the AMT credit in lieu of claiming bonus depreciation through Dec. 31, 2012
- Work Opportunity credit
- Enhanced deduction for donations of food inventory, book inventory to public schools and computer inventory for educational purposes
- Look-through treatment of payments between related controlled foreign corporations
- New markets tax credit
- Expensing of environmental remediation costs
- A liberal rule for S corporations making charitable donations
- Empowerment zone tax incentives
- Research and development credit reinstated retroactively for expenditures incurred after Dec. 31, 2009 but before Dec. 31, 2011
Highlights for Individuals
- Temporary payroll tax cut for employees – A 2 percent payroll/self-employment tax holiday for 2011. Employees will only pay 4.2 percent social security tax on wages and self-employed individuals will pay 10.4 percent. The threshold of $106,800 remains unchanged.
- Federal estate tax
- Reinstatement of the estate tax for 2010 with a top rate of 35 percent and $5 million exemption
- Option for estates of taxpayers who died in 2010 to elect to follow the pre-Tax Relief Act regime – no estate tax, but limits on step-up in basis for transferred assets
- Reinstatement of the generation-skipping transfer (GST) tax for 2010 at a 0 percent rate with a $5 million exemption (presumably, so as not to penalize taxpayers that made generation skipping transfers in 2010)
- Decrease in the top estate, gift and GST tax rates to 35 percent for 2011 and 2012
- Increase in the estate, gift and GST tax exemptions to $5 million for 2011, indexed for inflation in 2012
- Ability of the estate of a taxpayer who dies in 2011 or 2012 to elect to allow the surviving spouse to use the deceased’s unused estate tax exemption
- Reinstatement of the estate tax for 2010 with a top rate of 35 percent and $5 million exemption
- Extenders (through 2012 unless otherwise indicated)
- Bush-era tax cuts – tax rates will remain at 10, 15, 25, 33 and 35 percent
- Capital gains/dividends
- Lower (15 percent maximum) rate for long-term capital gains and qualified dividends
- 100 percent gain exclusion on certain qualified small business stock (applies to stock acquired through 2011)
- Lower (15 percent maximum) rate for long-term capital gains and qualified dividends
- Standard deduction and 15 percent tax bracket for married couples filing a joint return equated to 200 percent of that of single taxpayers
- Elimination of itemized deduction and personal exemption phase-outs
- Deduction for state and local sales taxes in lieu of state and local income taxes through 2011
- Increased AMT exemptions through 2011; ability to offset AMT with certain nonrefundable personal credits through 2011
- Charitable contributions
- Ability to exclude from income direct contributions from IRAs to qualified charities (up to $100,000 annually) through 2011
- Ability to take larger deduction for donations of long-term capital gains real property for conservation purposes through 2011
- Ability to exclude from income direct contributions from IRAs to qualified charities (up to $100,000 annually) through 2011
- Children and education
- American Opportunity education credit
- Above-the-line, higher education tuition and fees deduction through 2011
- Income exclusion for employer-provided education assistance
- Enhancements to the student loan interest deduction
- $2,000 Coverdell Education Savings Account contribution limit and other enhancements
- American Opportunity education credit
- Bush-era tax cuts – tax rates will remain at 10, 15, 25, 33 and 35 percent
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For questions or more information, please contact:
Robert M. Burak, partner-in-charge, tax services group
Direct: 330.255.1419
Email
Michael A. Hydell, tax manager
Direct: 330.255.2456
Email
Any tax advice in this communication is not intended or written by Bober Markey Fedorovich to be used, and cannot be used, by a client or any other person or entity for the purpose of (i) avoiding penalties that may be imposed on any taxpayer, or (ii) promoting, marketing, or recommending to another party any matters addressed herein. With this alert, Bober Markey Fedorovich is not rendering any specific advice to the reader.