Several key tax provisions took effect on January 1, 2013, as part of the American Taxpayer Relief Act of 2012:
Tax Rate Increases
- Top individual income tax rate increased from 35% to 39.5%.
- Top long term capital gains and qualifying dividends tax rate increased from 15% to 20% – or 23.8% if you include the new 3.8% Medicare tax on investment income (this is a 59% increase).
- The estate and gift tax exclusion was retained at $5+ million (indexed for inflation), but the top estate and gift tax rate was increased from 35% to 40%.
New Medicare Surtax
- Earned income (wages & self-employed income) in excess of $200,000 (for single people) and $250,000 (for married couple) will be subject to 0.9% Medicare tax.
- Investment income of taxpayers whose Adjusted Gross Income is over $250,000 (for joint filers) will be subject to the new 3.8% Medicare surtax.
- Taxable gains on residences (gains over $250,000 for individuals and $500,000 for joint filers) will also be subject to 3.8% Medicare surtax.
- Employer’s part of the Medicare tax remains unchanged.
Other
- The exemption amount for the Alternative Minimum Tax was increased and indexed for inflation.
- The Section 179 expense deduction for 2013 is $500,000 and additional 50% first-year bonus depreciation. These deductions, however, are scheduled to be greatly reduced in 2014.
- Itemized deductions and personal exemptions were reinstated.
- The gift tax exclusion per person increased to $14,000.