2010 Tax Relief Act

Highlights of the 2010 Tax Relief Act

by Glenn Schanel

Congress “played chicken” with taxpayers’ pocketbooks right up to the end but finally enacted legislation (the “TRA”) postponing certain sunset provisions under a 2001 tax act that has been commonly referred to as the Bush-era tax cuts.

Much of the new law simply retains favorable tax rules that applied in prior years. The following is a summary of the key provisions affecting individual taxpayers.

• The 2010 TRA retains the more favorable 2010 individual marginal tax rates for 2011 and 2012.
• Marriage penalty relief is extended through 2012.
• Favorable tax rates on capital gains and qualified dividends are extended for two years, though 2012.
• For 2011 only, employees will pay a 4.2% (instead of 6.2%) Social Security Tax on wages up to $106,800.
• The Act delays the sunset provisions relating to the limitation on itemized deductions and personal exemptions for certain higher income taxpayers for two years.
• The maximum available credits for both the Child Tax Credit and Dependent Care Credit are extended through December 31, 2012.
• The American Opportunity Tax Credit (formerly the Hope Credit) is extended for 2011 and 2012.
• The maximum per beneficiary contribution limitation of $2,000 for Coverdell Education Savings Accounts (ESAs) is extended through 2012.
• The above-the-line qualified tuition deduction is retroactively reinstated and extended for 2010 and 2011.
• The $2,500-a-year limitation for deducting higher education student loan interest (including higher income phase out limits) is extended for through 2012.
• Retroactively applies (to 2010 and extends through 2011) an “AMT patch,” raising the exemption amounts before an individual is subject to AMT.
• The Act retroactively extends the election for taxpayers to claim an itemized deduction for state and local general sales tax, instead of a deduction for state and local income taxes, through 2011.
• Certain energy credits are extended for nonbusiness energy property placed in service by December 31, 2011, although credit rates, dollar and lifetime limits revert to prior, less favorable levels.
• The Act retroactively reinstates and extends the deduction available to K–12 teachers (and certain other educators) for eligible out of pocket expenses for supplies and equipment for 2010, and through 2011.
• The tax-free treatment (up to $100,000 a year) of IRA charitable distributions by persons age 70½ or older is retroactively reinstated and extended for 2010 and 2011.

The new legislation also contains numerous business-related provisions, such as incentives for businesses to invest in machinery and equipment, as well as estate tax relief.

If you have any further questions, please do not hesitate to contact our offices at 561-624-2118.

Glenn Schanel, CPA, CFP® is the President of Schanel & Associates, PA, Certified Public Accountants. The firm provides tax, accounting, and consulting services to clients throughout South Florida and the United States.

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