On New Year’s Eve the Senate passed a bill, the American Taxpayer Relief Act of 2012 (H.R. 8), that would avert the tax components of the fiscal cliff, and delays for two months the massive spending cuts set to take effect as part of “sequestration.” The House passed that bill late last night by a vote of 257 to 167, and it is now on its way to President Obama for his signature. Here is a quick recap of what the bill will do and what is of interest to the charitable giving community:
- H.R. 8 permanently raises the income tax to 39.6% for individuals making more than $400,000 a year and families making more than $450,000
- Permanently raises capital gains and dividends tax rates to 20% for the same $400,000/$450,000 earners
- Permanently sets the estate tax at 40% with a $10 million exemption
- Includes the set of “tax extenders” that the Senate Finance Committee approved last summer, which includes a one-year extension of the IRA Charitable Rollover provision
The good news is the bill does not include a much discussed cap on itemized deductions. However, it does reinstate the smaller “Pease” limitation on itemized deductions for those making $300,000 or more. Pease is a provision that progressively decreases the value of itemized deductions on those earners over $300,000. The Pease limitation was repealed under President George W. Bush as part of the 2001/2003 tax cuts and was set to be reinstated January 1, 2013. Although the Alliance for Charitable Reform was pleased the charitable deduction was preserved in the fiscal cliff agreement, they have some concerns about the Pease provision because it could reduce charitable giving. To see ACR’s full statement, click here.
To read the full legislative update on the fiscal cliff deal, click here.