Tax provisions in the Fiscal Cliff Act.

• Author: Bonner, Paul

The "fiscal cliff" legislation enacted on Jan. 2--the American Taxpayer Relief Act, PL. 112-240--contains a large number of tax provisions. With some modifications, the act permanently extends provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001, PL. 107-16 (EGTRRA), and Jobs and Growth Tax Relief Reconciliation Act of 2003, PL. 108-27 (JGTRRA). It also permanently takes care of Congress's perennial job of "patching" the alternative minimum tax (ANT). It temporarily extends many other tax provisions that had lapsed at midnight on Dec. 31 and others that had expired a year earlier.

Individual tax rates: All the individual marginal tax rates under EGTRRA and JGTRRA are retained (10%, 15%, 25%, 28%, 33%, and 35%). A new top rate of 39.6% is imposed on taxable income over $400,000 for single filers, $425,000 for head-of-household filers, and $450,000 for married taxpayers filing jointly ($225,000 for each married spouse filing separately).

Phaseout of itemized deductions and personal exemptions: The personal exemptions and itemized deductions phase-out is reinstated at a higher threshold of $250,000 for single taxpayers, $275,000 for heads of household, and $300,000 for married taxpayers filing jointly.

Capital gains and dividends: A 20% rate applies to capital gains and dividends for individuals above the top income tax bracket threshold; the 15% rate is retained for taxpayers in the middle brackets. The zero rate is retained for taxpayers in the 10% and 15% brackets.

Alternative minimum tax: The exemption amount for the AMT on individuals is permanently indexed for inflation. For 2012, the exemption amounts are $78,750 for married taxpayers filing jointly and $50,600 for single filers. Relief from AMT for nonrefundable credits is retained.

Estate and gift tax: The estate and gift tax exclusion amount is retained at $5 million indexed for inflation ($5.25 million in 2013), but the top tax rate increases from 35% to 40% effective Jan. 1, 2013. The estate tax "portability" election, under which, if an election is made, the surviving spouse's exemption amount is increased by the deceased spouse's unused exemption amount, was made permanent by the act.

Income tax rates for trusts and estates: The act amends the table under Sec. 1(e) to provide rates of 15%, 25%, 28%, 33%, and 39.6% for trusts and estates. Unlike for individuals, there is no 35% rate for trust and estate income.

Roth rules: The act changes the rules governing...