By DJ Berry
The American Taxpayer Relief Act of 2012, or ATRA, was approved by both the Senate and the House on January 1, 2013. Of course, the ATRA was instituted for tax reasons and, depending on your political slant, either helped to avoid the fiscal cliff or sent the U.S. careening over the edge. Part 2 of these articles will deal with the individual aspects of the ATRA-this article is intended to mete out the general details of the estate/gift and business portions of the Act.
The estate/gift tax rate, which was 35% in 2012 but scheduled to increase to 55% in 2013, was instead set at 40% for people who died after December 31, 2012. The gift tax, which is attached to the estate tax rates, will also increase from the same 35% to 40%. The estate exemption, which generally determines how much a decedent can have in assets before their estate is considered taxable for federal purposes, will remain at $5,000,000 (although it will increase annually due to an inflation index built-in to the Act).
Another part of the Act related to the estate exemption is “portability” between spouses. Portability refers to the ability of the estate of a decedent who is survived by a spouse to make a portability election to permit the surviving spouse to utilize the decedent’s unused exclusion amount. For example, if the decedent has an estate of $2,000,000, his exemption would have an unused amount of $3,000,000 left over. Portability allows the decedent to transfer this $3,000,000 of unused exemption to the surviving spouse, giving her $8,000,000 to use for her own estate when she passes away. The ATRA has made such portability permanent.
Section 179 depreciation, which was set to be $139,000 for 2012 and $25,000 for 2013, has been increased to $500,000 for both years. The 50% bonus depreciation, which can be used to accelerate depreciation on many new assets, has been extended through 2013. The treatment for qualified leasehold improvements to be depreciated over fifteen years has been extended for 2012 and 2013. Two business credits, the research tax credit (which relates to research and development activity) and the work opportunity credit (which rewards employers that hire individuals from certain groups, such as veterans) have both been extended through 2013. A number of other credits and items were extended through 2013 and include items such as the new markets tax credit, 100% exclusion for gain on sale of qualified small business stock, and the charitable donation of property by S corporations.
The ATRA, while done as a last second stop-gap measure, does contain plenty of extended items such as credits, additional expenses, and gain exclusions to help individuals who are looking to gift, and for businesses that are deciding whether or not it is worth buying additional assets. Every situation is unique, so feel free to call the tax experts at Blackburn, Childers & Steagall if you would like to discuss how the Act may affect your circumstances.