Capital
Gains Exclusion
Personal Residence Capital Gain
Exclusion
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Summary of Federal Tax
Changes 2011
Summary of Federal Tax Law Changes for
2008 - 2017
Tax breaks in recent tax-relief bills
were designed to be phased in over a
number of years, or are indexed to
inflation. This article explains the
changes scheduled to come into effect
through 2017 to help you determine how
these tax laws affect your long-term
plans.
Tax Year Changes
2008
2010
2011
2011
2013
2017
Starting in 2011
Higher Tax Rates
Beginning in 2011, tax rates in effect
prior to 2001 spring back into effect.
The top income tax rate returns to 39.6
percent, and the special low 10 percent
bracket is eliminated. Whether this will
actually happen will be at the heart of
a spirited battle in Congress.
Estate Tax Revived
For individuals dying after 2011, the
federal estate tax returns with a
$1,000,000 exemption and a 50 percent
maximum rate. This assumes that Congress
allows the estate tax to disappear in
2011, which is unlikely.
Increase in Capital Gains and Dividend
Tax Rates
The tax rate reductions for long-term
capital gains and dividends is scheduled
to expire this year.
In 2011, the maximum long-term capital
gains tax rate goes back up to 20
percent from 15 percent. A lower 10
percent tax rate is used by individuals
who are in the 15 percent tax bracket.
Their long-term capital gains had been
tax-free since 2008.
In 2011, dividend income (other than
capital gain distributions from mutual
funds) is taxed as ordinary income at
your highest marginal tax rate.
Child Tax Credit
The credit of $1,000 per eligible child
reverts to $500 after 2011. After 2011,
none of the child tax credit will be
refundable to taxpayers unless their
earned income is more than $12,550. This
is one of the many Bush tax cuts
currently scheduled to expire after
2011.
Payroll Tax Credit
Starting in 2011, the partial credit for
payroll taxes paid is no longer
available.
Decreased Section 179 Expense Deduction
Taxpayers who purchase qualifying
business property may elect to deduct
the cost of the property (new or used)
in the year that it is placed in
service. This is referred to as a
Section 179 deduction. In 2010 and 2011,
the maximum amount of property that may
be taken as a Section 179 deduction is
$125,000, as indexed for inflation. In
2011 and future years, the maximum
deduction drops to $25,000.
College Savings Plans
Beginning in 2011, 529 Plans can no
longer be tapped tax-free to pay for a
computer or Internet access.
Tax Credit for College Tuition
The Hope credit is again limited to the
first two years of college and is capped
at $1,800. None of the credit is
refundable if it is more than your
regular income tax liability.
Earned Income Tax Credit (EITC)
Temporary increases in the Earned Income
Tax Credit for filers with three or more
children and the higher income levels
for the phaseout of the credit are
repealed.
Starting
in 2013
Tax Relief for Taxpayers Who Lose Their
Homes Due to Foreclosure Expires
Beginning in 2013, debt forgiven in
connection with the foreclosure of a
principal residence will once again be
considered taxable income (unless you
are in bankruptcy or insolvent).
Mortgage Insurance Premiums
The special itemized deduction for
mortgage insurance premiums paid on
mortgages taken out after 2006 expires
after 2012.
Starting
in 2017
Credit for Residential Energy-Efficient
Property
The credit for 30 percent of the cost of
installing solar water heating
equipment, photovoltaic or fuel cell
equipment, geothermal heat pumps or wind
turbines in your primary residence or a
second home does not apply after 2016.
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