The U.S. Senate today gave broad bipartisan approval to a tax bill that extends for two years the Bush era income tax rates, capital gains and dividend rates for individuals, adjusts exemptions for the alternative minimum tax (AMT), and extends numerous popular tax credits.
The legislation also adds a new estate and gift tax provision, and a temporary reduction in the employee-paid portion of the payroll tax. And, the bill extends unemployment compensation for 13 months.
Details of the bill, including the inheritance and gift tax provision, were published in the Senate Finance Committee summary of the law. In all, the bill includes 141 specific items, many of which are extended without change.
The total cost of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 is estimated to be $858 billion.
Estate and gift tax
Congress was required to draft a new provision for the estate and gift tax because tax rates were phased out by The Economic Growth and Tax Relief Reconciliation Act of 2001, but were due to rise to 55 percent at the end of this year.
The estate and gift tax sets the exemption at $5 million per person and $10 million per couple, and a top tax rate of 35 percent for the estate, gift, and generation-skipping transfer taxes for two years through 2012. The exemption amount is indexed beginning in 2012.
The provision is effective January 1, 2010, but allows an election to choose no estate tax and modified carryover basis for estates arising on or after January 1, 2010, and before January 1, 2011. The proposal sets a $5 million generation-skipping transfer tax exemption and zero percent rate for the 2010 year.
AMT and tax credits
The bill increases the exemption amounts for the AMT to $47,450 for individuals and $72,450 for married couples filing jointly. In 2011, the exemptions would be $48,450 for individuals and $74,450 married couples filing jointly.
The research and development credit is extended as is the increase in the maximum amount and phase-out threshold under Section 179. Bonus depreciation provision for investments in new business equipment is raised to 100 percent for investments placed in service after September 8, 2010, and through December 31, 2011.
Increases in the earned income credit enacted by the American Recovery and Reinvestment Act have been extended for two years, and the childcare tax credit levels enacted in 2001 were extended. The personal exemption phase-out and the itemized deduction limitation were temporarily repealed. Some of the other individual tax credits that were extended through 2011 include:
- Above-the-line deduction for certain expenses of elementary and secondary school teachers
- Deduction of state and local general sales taxes
- Extension of provision encouraging contributions of capital gain real property for conservation purposes
- Above-the-line deduction for qualified tuition and related expenses
- Extension of tax-free distributions from individual retirement plans for charitable purposes
- The expanded student loan interest deduction
The final vote was 81 to 19. The measure now goes to the House for approval.