I’ve highlighted below the “permanent” and temporary changes that are a part of the American Taxpayer Relief Act of 2012 that was signed into law by President Obama on January 2nd, 2013. Obviously, there is much more to this Act than listed below. So, please feel free to contact me if you have any questions.
____________________
PERMANENT CHANGES*
Tax Rates:
Retain individual income marginal tax rate structure of 10, 15, 25, 28, 33, and 35 percent for taxable income under $400,000 ($450,000 for married taxpayers filing jointly); for those with taxable income over $400,000 ($450,000 for married taxpayers filing jointly) your new marginal tax is 39.6%. The thresholds are indexed for inflation after 2013.
Child tax credit of $1,000 per child:
For each dependent child you are able to claim under the age of 17 (for qualified tax payers).
Capital Gain Rates:
Retain 15 percent tax rates on long-term capital gains and qualified dividends (0 percent for those who would otherwise be in the bottom two tax brackets) for taxpayers in all but the top income tax bracket; 20 percent rate for those in the top bracket.
The Child and Dependent Care Credit:
This is available if you pay someone to care for your dependent who is under age 13, so that you can work or look for a job. The credit is 20 to 35 percent of your child-care expenses up to $6,000 — the size of your credit depends on your income.
The Alternative Minimum Tax (AMT):
The AMT patch was permanently extended. This means 34 million middle-income families will not see a tax increase of $3,700. Under previous law, the AMT typically hits taxpayers who have a household income of over $75K and are married with more than two kids.
____________________
TEMPORARY CHANGES
The Educator Expense Deduction (extended through 2013):
If you are a teacher, you can claim up to $250 of classroom expenses for supplies, materials, books and software.
Mortgage Debt Relief: (extended through 2013)
Taxpayers who have mortgage debt canceled or forgiven on their primary home are eligible to have this forgiveness excluded from income in 2013.
$500 Energy-Efficient Home Improvement Credit (extended through 2013):
Taxpayers can claim a tax credit of up to $500 for certain energy-saving improvements to a principal residence. This break expired at the end of 2011, but the new law retroactively restores it for 2012 and extends it through 2013.
Mortgage Insurance Premiums Deduction: (extended through 2013)
This provision treats Mortgage Insurance Premiums as deductible interest that is qualified residence interest.
American Opportunity Higher Education Tax Credit: (extended through 2017)
The American Opportunity credit, which can be worth up to $2,500 and can be claimed for up to four years of undergraduate education, was extended through 2017.
Higher Education Tuition Deduction:(extended through 2013)
This write-off, which can amount to as much as $4,000 or $2,000 for higher-income folks, expired at the end of 2011. The new law retroactively restores it for 2012 and extends it through 2013.
Option to Deduct State and Local Sales Taxes: (extended through 2013)
In past years, individuals who paid little or no state income taxes were given the option of instead claiming an itemized deduction for state and local sales taxes. The option expired at the end of 2011, but the new law restoratively restores it for 2012 and extends it through 2013.
____________________
*Keep in mind when Congress says “permanent” it means, “until we decide to change it.” Permanent means that if Congress does nothing, than these changes will stay in place – unlike the temporary “Bush” tax cuts that had to be voted on in order to extended.
—Written on January 7, 2013.