The Tax Relief Act of 2010

In addition to an extension of the IRA Charitable Rollover for tax years 2010 and 2011 only, the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2012 ("Tax Relief Act of 2012"), enacted December 17, 2010, included changes intended to provide temporary tax relief through 2012. A few of those changes are described below.

Temporary income tax relief. The 2010 income tax rates remain in effect through 2012, with a top ordinary income tax rate of 35% and the lowest tax rate at 10%.

Temporary capital gains tax relief. The long-term capital gains tax rates in effect in 2010 were extended an additional two years, through 2012. For those taxpayers in the 15% tax bracket and below (with a few exceptions), the capital gains tax rate continues at zero percent; and for those in the 25% tax bracket and above, the long-term capital gains and qualifying dividend tax rates continue at 15%. Commencing in 2013, and absent further legislation, the zero percent and 15% rates will expire and become 10% and 20% respectively.

Temporary social security tax relief. The employee portion of Social Security taxes was reduced from the 2010 rate of 6.2% to a temporary rate of 4.2% for 2011 only. The employer portion remains the same at 6.2%; and the Social Security wage base remains the same at $106,800 for 2011. Medicare tax rates were not changed and remain at 1.45% each for employees and employers.

Temporary estate tax relief.

  • The Tax Relief Act of 2010 sets the estate tax exemption at $5 million per person and $10 million per couple for tax years 2011 and 2012.
  • For the estate, gift, and generation skipping transfer taxes, the top tax rate is 35 % for tax years 2011 and 2012.
  • Executors for estates created on or after January 1, 2010, and before January 1, 2011, may choose to apply either the 2010 law with no estate tax and modified carryover cost basis or the Tax Relief Act of 2010 with an estate tax exemption of $5 million per person and a complete step-up in the cost basis.

Temporary gift tax relief.

  • The lifetime gift tax exemption is increased from $1 million to a total of $5 million through 2012. So, individuals who used their entire $1 million gift tax exemption prior to 2011 will be able to give up to an additional $4 million without incurring a gift tax through 2012.
  • The gift tax exemption is now reunified with the estate tax exemption, starting in 2011 and through 2012.
  • In 2011 and 2012, the gift tax exemption will be portable. Portability allows a surviving spouse to use the amount of estate and gift tax exemption not used by the decedent spouse.

Temporary generation-skipping transfer tax relief. For tax years 2011 and 2012, generation-skipping transfers of up to $5 million are exempt from the generation-skipping transfer tax.

Temporary relief from deduction limitation. Previously enacted as a one-year only repeal in 2010, the Tax Relief Act of 2010 suspends for two additional years (until the end of 2012) the limitation on itemized deductions for higher-income earners.







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