As we were going to press with this newsletter, the Senate and the House have voted on a last-minute budget deal worked out between President Barack Obama and congressional Republicans averting the so-called fiscal cliff.
Details of the deal were sketchy at press time, but here are some highlights of the compromise bill as provided by unofficial sources:
- The current tax rates will be kept in place for individuals making less than $400,000. Incomes above $400,000 ($450,000 for married taxpayers, $425,000 for heads of household) will be taxed at 39.6%.
- Capital gains rates will be raised from 15% to 20% for taxpayers in the 39.6% bracket.
- Qualified dividends will continue to be taxed at capital gains rates.
- The estate tax rate will rise to 40% (up from 35%) with an exemption of $5 million.
- A one-year extension of unemployment benefits will be provided.
- There will be a two-month delay on the automatic spending cuts.
- Tax credits established under President Obama’s economic recovery program will be extended for 5 years.
- The American Opportunity Tax Credit (tuition credit) will be extended for 5 years.
- The alternative minimum tax (AMT) will be made permanent with the exemption being inflation-adjusted in future years.
- Itemized deductions and personal exemptions for households will be phased out for those making more than certain amounts.
- A host of individual provisions will be extended, including the treatment of mortgage insurance premiums as qualified residence interest, deductions for state and local general sales taxes, and the above-the-line deduction for qualified tuition and related expenses.
- Key business tax breaks will be extended such as depreciation provisions, including bonus depreciation, and the research and work opportunity tax credits.
- There will be no extension of the 2% payroll tax deduction.
This is an evolving story, so we will keep you updated as additional information and details become available.