Earlier today President Obama signed into law the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. Some of the more noteworthy tax-related provisions are listed below.
Business-Related Provisions
- 100% bonus depreciation for property placed in service after September 8, 2010 and before 2012 that otherwise qualifies for 50% bonus depreciation.
- Extension of 50% bonus depreciation for property placed in service in 2012 (and, in certain limited cases, in 2013).
- Extension of numerous energy-related provisions, including the election to receive a grant from the US Treasury in lieu of the investment tax credit (ITC). For a summary of the energy-related tax provisions of the Act, please refer to our Energy Tax Law Alert.
- Extension of the election to accelerate the alternative minimum tax (AMT) and research credits in lieu of bonus depreciation through 2012.
- The amount a taxpayer may elect to expense, rather than depreciate, for the cost of certain property used in a trade or business is increased for 2010 and 2011 to $500,000, and the point at which the benefit begins to phase out is increased to $2,000,000.
- Extension of the 15-year recovery period for qualified leasehold improvement property and qualified restaurant property through 2011.
- Extension of the allowed income exclusion for qualified commuter transit benefits or transit passes through 2011.
- Extension of various credits that expired in 2009, including the research credit and the new markets tax credit, through 2011.
Provisions Related to Individuals
- A two percentage point reduction (from 6.2% to 4.2%) in the employee and self-employed portions of the social security tax on 2011 earnings.
- Extension through 2012 of:
- Current marginal income tax rates.
- 15% long-term capital gains rate (5% for lower income individuals).
- Taxation of "qualified dividends" at long-term capital gains rates.
- Elimination of the "marriage penalty" on income taxed at the 10% and 15% brackets.
- Elimination of the reduction of itemized deductions based on adjusted gross income (AGI).
- Extension of the 100% exclusion (for both regular tax and AMT) of gain from the sale of qualified small business stock acquired in 2011.
- A two-year extension of the AMT patch. For 2010, the amounts of income otherwise exempt from AMT are $47,450 for unmarried individuals who were not surviving spouses, $72,450 for married couples filing jointly and surviving spouses, and $36,225 for married individuals filing separately. For 2011, the amounts are $48,450 for unmarried individuals who were not surviving spouses, $74,450 for married couples filing jointly and surviving spouses, and $37,225 for married individuals filing separately.
- Extension of the allowance of certain nonrefundable tax credits (e.g., dependent care credit, credit for the elderly and disabled, adoption credit, credit for savers, credit for certain nonbusiness energy property, credit for residential energy efficient property) to offset a taxpayer's AMT liability through 2011.
- Various relief provisions related to gift and estate tax through 2012, including:
- Maintaining the federal gift tax rate of 35%.
- Increasing the lifetime federal gift tax exemption to $5,000,000 beginning January 1, 2011 (until then it remains at $1,000,000).
- Changing the amount of an estate covered by the unified credit and thus exempt from federal estate tax to $5,000,000.
- Providing an estate with an election to transfer any unused unified credit to a surviving spouse ("portability").
- Providing an option for estates of decedents who died in 2010 to elect either to have a federal estate tax with a $5,000,000 exemption, the 35% rate and adjusted basis to date of death values or no federal estate tax and only limited adjusted basis.
- Providing a deduction from the federal estate tax for state estate taxes paid. Washington State continues to exempt $2,000,000 per person and Oregon continues to exempt $1,000,000 per person. Neither state allows portability.
- Allowing a $5,000,000 per person exemption for generation-skipping transfers and transfers to trusts designed to be exempt from generation-skipping transfer tax.
- Setting a generation-skipping transfer tax rate of 0% on qualifying generation-skipping transfers in 2010 and 35% on taxable transfers in 2011 and 2012.
- Extension to 2010 and 2011 of various provisions that expired at the end of 2009, including:
- Election for individuals to deduct state and local sales taxes in lieu of state and local income taxes.
- Above-the-line deduction for certain higher education expenses.
- Above-the-line deduction for certain teacher classroom expenses.
- Allowance of tax-free distribution from an IRA for certain charitable purposes.
If you have further questions, please contact your Stoel Rives attorney.