Its been ten days and the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (2010 Tax Relief Act) is now on the books, with numbers that were similar to what was leaked before it was signed. Here is a synopsis of what the new legislation means:
Income tax: extension of the Bush Tax cuts until the year of 2012 ( rates of 10, 15, 25, 28, 33 and 35).
Capital Gains/Dividends: The maximum rate will be capped at 15 percent (zero percent for taxpayers in the 10 and 15 per- cent income tax brackets) for 2010, and will extend until the end of 2012.
Estate Tax: A new estate tax regime, with 35% top rate and and $5 million applicable exclusion amount is in place until the end of 2012. The new law also allows portability between spouses: if one spouse does not use all $5 million, the estate can elect to allow the surviving spouse to use the rest upon their death.
For those who passed during 2010, Congress gives you two options:
1. Apply the new 35% and $5 million exclusion amount and receive "stepped up" basis treatment (this means assets like your house, stocks, etc. are valued at the date of death as opposed to their original purchase value, which can mean a huge tax savings assuming the assets have increased in value), or
2. Pay no estate tax, but your assets are allowed only a $1.3 million basis "step up," ( with the rest of your assets being subject to the carry over basis rules (assets are valued at the lesser of the decedent’s basis or the fair market value of the property on the decedent’s death).
Gift Tax: for gifts in 2010, the gift tax is limited to a $1 million exclusion amount, but after 2010 it is re-unified with the estate tax, for a unified $5 million amount.
Generation Skipping Tax: The GST remains at a 0% rate for 2010 with a $5 million exclusion amount, and starting in 2011, the GST unites with the highest estate and gift tax rates (35%).
Those are the highlights. There is a lot more to the legislation, but those are the big talking points for now. More to come.