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Highlights of the American Taxpayer Relief Act of 2012

It's official—the President has signed the American Taxpayer Relief Act of 2012 into law. The new law gives taxpayers some certainty for at least another year, and in some cases, permanently.

Here are some highlights of changes in effect for 2013:

1. Estate and Gift Tax Exemptions and Rates:

Estate planners and taxpayers have been dealing with fluctuating exemption amounts over the last decade, so it is nice to have some certainty in this area. The exemption amounts are now made permanent at $5 million ($10 million per couple), indexed for inflation, instead of reverting to the $1 million amount, as would have happened without the legislation.

The tax rate on the portion of taxable estates larger than the exemption amount will now be 40% (as compared to 35% in 2012 and 55% that would have gone into effect in 2013 without the bill.)

Gift tax exemption amounts are again “unified” with the estate tax exemption amounts of $5/$10 million, and will also be adjusted for inflation.

The popular “portability” rule is made permanent, giving couples the ability to apply the full $10 million exemption at the time of the death of the last spouse to die.

2. Charitable Deductions:

The legislation did not add any new restrictions on the deductibility of charitable gifts by most taxpayers, but the legislation did bring back a rule to partially phase out itemized deductions for taxpayers earning more than $250,000 ($300,000 per couple).

3. Charitable IRA Rollover:

The charitable IRA rollover rule was a rule that allowed a taxpayer over age 70 and ½ to make direct distributions from his or her IRA to charities (up to $100,000) and have the transfer count toward the taxpayer’s “required minimum distribution” from the IRA for the year.

The rule had lapsed at the end of 2011, but the new fiscal compromise legislation reenacts the provision retroactive to January 1, 2012 and keeps it through all of 2013.

In addition, the bill contains two special transition rules: the first allows a taxpayer to make a direct IRA transfer between January 1, 2013 and February 1, 2013 and have that still count toward the 2012 RMD amount.

The second transition rule provides that amounts distributed from IRA’s to taxpayers in December 2012 can, up to the $100,000 limit, be contributed to charity by February 1, 2013 and be treated as if such amounts were transferred directly to charity from the IRA.

If you are interested in the new opportunities until February 1, 2013 to make additional IRA transfers under the new legislation, please contact your tax advisor to see if such a transfer would be beneficial in your personal circumstances.

Questions? Contact Jodie Nolan (402) 319-7510.