American Taxpayer Relief Act of 202 Changes Effective in 202 Effective QF New Law Before Law Change Date Page Alternative Minimum Tax (AMT) Individuals AMT 2-3 For 202, the AMT exemption amounts are: $50,600 for The exemption after 20 was Exemption single and HOH; $78,750 for MFJ and $39,375 for MFS. scheduled to be $33,750 for Amount After 202, the above amounts are indexed for inflation. single and HOH; $45,000 for [IRC 55(d)()] MFJ and $22,500 for MFS. Use of s to Offset AMT 2- The following credits can offset both regular tax and AMT: [IRC 26(a)(2)] Adoption credit. Alternative motor vehicle credit. Child and dependent care credit. Child tax credit. D.C. first-time homebuyer credit. Earned income credit. Education (American Opportunity and Lifetime Learning) credits. Elderly or disabled credit. Federal taxes paid on fuels. Foreign tax credit. Health coverage credit. Mortgage interest credit (homeowners issued government mortgage credit certificates). Personal energy property credit. Plug-in 2- and 3-wheeled vehicle credit. Plug-in electric drive motor vehicle credit. Residential energy efficient property credit. Retirement saver s credit. Small employer health insurance credit. Individual Deductions, Exclusions and s Educator s Expenses 9-7 The above-the-line deduction for up to $250 of out-of-pocket expenses for grades K-2 teachers, instructors, counselors, principals and aides is retained for. [IRC 62(a)(D)] Mortgage Insurance Premiums Personal Energy QSBS Gain Exclusion 5- The deduction for qualified mortgage insurance premiums for taxpayers with AGI no greater than $09,000 is retained for premiums paid or accrued in. [IRC 63(h)(3)(E)(iv)] 2-0 The $500 lifetime credit for qualified energy efficiency improvements and expenditures to a taxpayer s principal residence is retained for two years, through. (IRC 25C) After 20, the following credits could be used to offset AMT: Adoption credit. Alternative motor vehicle credit. Child tax credit. American Opportunity credit. Earned income credit. Federal taxes paid on fuels. Foreign tax credit. Health coverage credit. Plug-in electric drive motor vehicle credit. Residential energy efficient property credit. Retirement saver s credit. Small employer health insurance credit. QSBS 7-4, For noncorporate taxpayers, the acquisition period for the Gains on QSBS acquired after acquired C-7 00% gain exclusion for qualified small business stock 2/3/ qualified for only a during (QSBS) is extended two years, so that it applies to stock 50% gain exclusion (60% for acquired 9/28/0 2/3/3. For stock acquired during that QSBS issued by a QBE). Also, a period, the following rules also apply: [IRC 202(a)(4)] percentage of the excluded gain None of the 60% gain exclusion rules for QSBS issued by was an AMT preference item. a qualified business entity (QBE) apply. No portion of the excluded gain is added back to determine alternative minimum taxable income. The new law clarifies that the acquisition date is determined after applying Section 223 (which provides for a tacked-on holding period for assets acquired in certain exchanges). Numerical references are to the 202 040 Quickinder Handbook; alphanumeric references are to the 202 Small Business Quickfinder Handbook. 2 Copyright Thomson Reuters Handbooks American Taxpayer Relief Act of 202
American Taxpayer Relief Act of 202 (Continued) Changes Effective in 202 Effective QF Date Page New Law Before Law Change Individual Deductions, Exclusions and s (Continued) Qualified Conservation Contributions 5-3, N-5 The increased deduction limit for qualified conservation contributions [50% of AGI for individuals (00% of AGI for qualified farmers and ranchers individual or corporate)] is retained for. The extended carryforward period for qualified contributions in excess of the AGI limit (5 years) is also retained. [IRC 70(b)()(E)(vi) and 70(b)(2)(B)(iii)] State and Local Sales Taxes Tuition and Fees 5-5 The election to deduct state and local general sales taxes instead of state and local income taxes is retained for 202 and. [IRC 64(b)(5)] 3-4, 3-5 The above-the-line deduction for tuition and fees for qualified higher education expenses is retained for. (IRC 222) Individual Retirement Accounts Qualified Charitable Distributions (QCDs) 4-3 The rule allowing taxpayers over age 70/2 to make tax-free transfers from an IRA directly to a charity is extended for two years. Any amounts so transferred are counted toward the individual s required minimum distribution. [IRC 408(d)] Note: The new law allows taxpayers to elect to treat any QCD made during January as if it occurred on December 3, 202. In addition, IRA distributions received in December 202, and contributed to charity before February,, may be treated as QCDs. Business Qualified Leasehold, Restaurant and Retail Section 79 Increased Deduction Limit Extended Section 79 Qualified Real 202 2 and 2 202 2 and 2 0-3, 0-4, J-3 The 5-year (straight-line) recovery period for qualified leasehold improvements, qualified restaurant property and qualified retail improvements is retained for property placed in. [IRC 68(e)(3)(E)] 0-0 The Section 79 deduction and qualifying property limits are $500,000 and $2,000,000, respectively. In addition, off-theshelf computer software continues to qualify for Section 79 expensing and taxpayers can amend or irrevocably revoke a Section 79 election. [IRC 79(b), (c) and (d)] Note: After, the limits are $25,000 and $200,000, respectively. 0-0, J-3 The Act extends for two years the ability to claim the Section 79 deduction on up to $250,000 of qualified real property (qualified leasehold improvements, qualified restaurant property and qualified retail improvement property). Note: A Section 79 deduction attributable to qualified real property cannot be carried over past ; any such amount must be capitalized in as if no Section 79 election had been made. For 202, the limits were $39,000 and $560,000. Also, for and, off-the-shelf software would not qualify and the election could only be amended or revoked with IRS consent. Business s Alternative Fuel Vehicle Refueling O-8 The credit is extended for two years for property service through 2/3/3 (other than hydrogen refueling property, which already goes through 204). [IRC 30C(g)()] Note: Both business and personal-use property qualify for the credit. Numerical references are to the 202 040 Quickinder Handbook; alphanumeric references are to the 202 Small Business Quickfinder Handbook. 2 2 Handbooks American Taxpayer Relief Act of 202 Copyright Thomson Reuters
American Taxpayer Relief Act of 202 (Continued) Changes Effective in 202 Effective QF Date Page New Law Before Law Change Business s (Continued) Biodiesel and Renewable Diesel Fuels O-7, O-9 The credit is extended for two years. (IRC 40A) Differential Wage Payment Mine Rescue Team Training New Energy Efficient Homes New Markets Plug-in Electric Vehicles 2- and 3-Wheeled Vehicles Railroad Track Maintenance Research Work Opportunity Amounts paid in O-9 The credit is extended for two years, through. [IRC 45P(f)]. 202 2 and O-9 The credit for qualified training program costs is extended 2 two years. (IRC 45N) O-0 The credit is extended for two years for homes acquired through December 3,. Also, the construction standards for determining whether a home qualifies are modified for homes purchased in. [IRC 45L(g)] O-9 The credit is extended for two years, through. The carryover period for unused credits is also extended for two years, through 208. The limit on qualified equity investments remains at $3.5 billion per year for. [IRC 45D(f)] -8, O-0 The credit is extended for two years. However, 4-wheeled low-speed vehicles are no longer eligible for the credit. [IRC 30D(g)] Note: Both business and personal-use property qualify for the credit. 202 2 and O-9 The credit for costs incurred to maintain certain railroad 2 track, roadbed, bridges, etc. is extended two years. (IRC 45G) O-9, O-2 The credit is extended for two years, for amounts paid or incurred through December 3,. New rules apply to taxpayers under common control or when there is a change in ownership of a trade or business. [IRC 4(f) and (h)()] O-9 The credit is extended for two years, for wages paid to workers beginning work through 2/3/3. [IRC 5(c)(4)] Other Business (including Sole Proprietors) Provisions Donation of Food Inventory C-4 Above-basis deduction for charitable donations of apparently wholesome food inventory is extended for two years, through. [IRC 70(e)(3)(C)] Domestic Producer Deduction Puerto Rican Activities Fringe Benefits Transit Passes and Vanpooling 202 2 and 6-22, 2 O-5 Through, qualified production activities performed in Puerto Rico are included as domestic production gross receipts as long as the activity in Puerto Rico is subject to U.S. tax. [IRC 99(d)(8)(C)] Expired for wages paid to workers who begin work after 20 (after 202 for qualified veterans). K-2, K-7 The increased exclusion for employer-provided transit passes and vanpooling (to provide parity with employerprovided parking) is extended for two years, through. [IRC 32(f)(2)] Numerical references are to the 202 040 Quickinder Handbook; alphanumeric references are to the 202 Small Business Quickfinder Handbook. 2 Copyright Thomson Reuters Handbooks American Taxpayer Relief Act of 202 3
American Taxpayer Relief Act of 202 (Continued) Changes Effective in 202 Effective QF Date Page New Law Before Law Change Other Business (including Sole Proprietors) Provisions (Continued) S Corporation Built-in Gains 202 2 and 2 D-7, P-0 A C corporation that elects to be taxed as an S corporation is subject to tax at the highest corporate rate (currently 35%) on gains that were built-in at the time of the election and that are recognized during the recognition period. The new law extends the temporary provision for two years, reducing the recognition period from the S corporation s first 0 years to its first five years. [IRC 374(d)(7)] For years beginning after 20, the built-in gains tax applies during the first 0 years following a conversion from a C corporation to an S corporation. The provision allowing S shareholders to reduce their stock S Shareholder 202 2 and Basis Adjustment for Charitable Contributions 2 basis by their allocable share of the property s adjusted basis (rather than FMV) when S corporations make charitable contributions of property is extended for two years. [IRC 367(a)(2)] Numerical references are to the 202 040 Quickinder Handbook; alphanumeric references are to the 202 Small Business Quickfinder Handbook. 2 End of Table Changes Effective in 202 Notes 4 Handbooks American Taxpayer Relief Act of 202 Copyright Thomson Reuters
Effective Date Individual Income Tax Rates 0% Rate and 5% Rate Bracket Marriage Penalty Relief 25%, 28% and 33% Rates 35% and 39.6% Rates Reduced Rate on Long-term Capital Gains and Qualified Dividends and and and and Individual Deductions and Exclusions Cancellation of Debt (COD) Mortgage Debt ized Deductions Phase-Out Personal Exemption Phase-Out QSBS AMT Preference Standard Deduction Marriage Penalty Relief American Taxpayer Relief Act of 202 Changes First Effective in New Law Before Law Change The 0% income tax rate is made permanent. (Act 0) Expired 2/3/2. The provision making the size of the 5% regular income tax rate bracket for individuals filing MFJ twice the size of the 5% regular income tax rate bracket for single taxpayers is made permanent. (Act 0) The 25%, 28% and 33% income tax rates are made permanent. (Act 0) The 35% income tax rate is made permanent to the extent the taxpayer s taxable income does not exceed $400,000 (Single), $425,000 (HOH), $450,000 (MFJ) and $225,000 (MFS). Taxable income above those amounts is taxed at 39.6% (Act 0). After, these thresholds will be adjusted for inflation. The 5% maximum rate on long-term capital gains and qualified dividends is made permanent to the extent taxable income does not exceed $400,000 (Single), $425,000 (HOH), $450,000 (MFJ) and $225,000 (MFS) (indexed for inflation after ). When taxable income exceeds those amounts, a 20% rate applies to long-term capital gains and qualified dividends (to the lesser of such gains and dividends or taxable income in excess of the threshold amount). These rates apply for regular tax and AMT. (Act 02) Note: Like pre- law, to the extent the long-term capital gain or qualified dividend income would be taxed at 0% or 5% absent the preferential rates, they are subject to a 0% rate. Also, the 25% rate on unrecaptured Section 250 gain and the 28% rate on collectibles gain and on qualified small business stock gain remain in effect. The provision allowing individuals to exclude up to $2 million ($ million for MFS) of COD income from qualified principal residence indebtedness that is cancelled because of their financial condition or decline in value of the residence is extended one year, through. [IRC 08(a)()(E)] and and and and The phase-out of itemized deductions applies to taxpayers with adjusted gross income in excess of $250,000 (Single), $275,000 (HOH), $300,000 (MFJ) and $50,000 (MFS) (indexed for inflation after ). (Act 0) The deduction for personal exemptions is reduced for taxpayers with adjusted gross income in excess of $250,000 (Single), $275,000 (HOH), $300,000 (MFJ) and $50,000 (MFS) (indexed for inflation after ). (Act 0) For sales of qualified small business stock (QSBS), the AMT preference amount equal to 7% of the excluded gain is made permanent. (Act 0) The provision making the basic standard deduction for taxpayers filing MFJ equal to twice the basic standard deduction for single taxpayers is made permanent. (Act 0) After 202, the 5% rate bracket for MFJ was 67% of that for single taxpayers. Tax rates rose to the following after 202: 28%, 3% and 36%. The 35% tax rate rose to 39.6% after 202. After 202, the maximum rate on capital gains was 20% and the reduced rate no longer applied to qualified dividends. Expired after 202. ized deductions were subject to phase-out after 202 when AGI exceeds $00,000 ($50,000), indexed for inflation. The deduction for personal exemptions was subject to phase-out after 202 when AGI exceeds $00,000 (Single), $25,000 (HOH), $50,000 (MFJ) and $75,000 (MFS), indexed for inflation. After 202, the AMT preference for QSBS was scheduled to return to 28% or 42% of the excluded gain, depending on when the stock was acquired. After 202, the standard deduction for MFJ was 67% of that for single taxpayers. Copyright Thomson Reuters Handbooks American Taxpayer Relief Act of 202 5
Retirement Plans In-Plan Roth Rollover Tax s Adoption and Income Exclusion Child Tax Child Tax Refundable Threshold Child and Dependent Care Earned Income (EIC) Three or More Children Earned Income (EIC) MFJ Phase-Out Education American Opportunity Coverdell Education Savings Accounts Exclusion for Employer- Provided Educational Assistance Exclusion for Qualified Scholarships Effective Date and and and American Taxpayer Relief Act of 202 (Continued) Changes First Effective in New Law Participants in a 40(k), 403(b) or 457 plan that includes a qualified Roth contribution program can roll over (convert) any amount in a non-roth account under that plan to a Roth account under the same plan. The amount converted is subject to regular income tax (as if it had been distributed to the participant) but not the 0% early withdrawal penalty. [IRC 402A(c)(4)] The $0,000 limit (adjusted for inflation) for the adoption credit and income exclusion is made permanent. (Act 0) The $,000 credit amount is made permanent as is the provision allowing a portion to be refundable. (IRC 24) 207 The earned income threshold for computing refundability remains at $3,000 (rather than $0,000) for five more years (through 207). (IRC 24) and The eligible expense limits of $3,000 (one child) and $6,000 (two or more children) are made permanent as is the maximum credit rate of 35%. (IRC 2) 207 The rule allowing a 45% credit percentage for taxpayers with three or more children is extended for five years. [IRC 32(b)(3)] and The rule allowing a higher phase-out threshold amount for married couples filing joint returns is made permanent. [IRC 32(b)(3)] Note: For 207, the additional MFJ amount is $5,000 (indexed for inflation); after 207, the amount is $3,000. 207 Rules in effect in 202 are retained for five more years, through 207. [IRC 25A(i)] and and and Rules in effect in 202 are made permanent. (Act 03; IRC 530) Rules in effect in 202 are made permanent. (Act 03; IRC 27) Scholarships received under the National Health Services Corps Scholarship Program and the F. Edward Hebert Armed Forces Health Professions Scholarship and Financial Assistance Program remain excludable from income, even though the amounts are conditioned on the recipient providing medical services. (Act 03; IRC 7) Before Law Change Only funds the individual could otherwise withdraw from the plan were eligible for an in-plan Roth rollover. After 202, rules reverted to those in effect in 200. After 202, rules reverted to those in effect in 200, including $500 credit amount. After 202, the earned income threshold for refundability reverted to $0,000. After 202, rules reverted to those in effect in 200, including lower eligible expenses and credit rate. After 202, the special rule for families with three or more children expired. After 202, the special rule for MFJ filers expired. After 202, the American Opportunity credit was replaced by the Hope (as in effect in 2008). After 202, rules reverted to those in effect in 200, including a $500 contribution limit. After 202, rules reverted to those in effect in 200. After 202, these scholarships were not excludable. 6 Handbooks American Taxpayer Relief Act of 202 Copyright Thomson Reuters
Education (Continued) Student Loan Interest Deduction Effective Date and Businesses and Sole Proprietors Accumulated Earnings Tax Rate Collapsible Corporations Employer- Provided Child Care Personal Holding Company Tax Rate Special (Bonus) Depreciation Special (Bonus) Depreciation Corporate Election to Accelerate Certain s Instead Special (Bonus) Depreciation Percentage of Completion Method and and and and acquired and placed in service before 204 American Taxpayer Relief Act of 202 (Continued) Changes First Effective in New Law Rules in effect in 202 are made permanent. (Act 03; IRC 22) Before Law Change After 202, rules would have reverted to those in effect in 200, including lower phaseout ranges and a 60-month benefit period. The accumulated earnings tax rate is 20%. [Act 02(c); IRC 53] Tax rate reverted to 39.6% beginning in. The repeal of the collapsible corporation rules is made permanent. Expired 2/3/2. [Act 02(a)] The employer credit of up to $50,000 per year based on a percentage of qualified child care expenditures related to the acquisition or Expired 2/3/2. construction of a child care facility and operating such facility is made permanent. (Act 0; IRC 45F) The personal holding company tax rate is 20%. [Act 02(c); IRC 54] Tax rate reverted to 39.6% beginning in. The 50% special depreciation allowance for new property additions is extended for one year, through. The following special allowance rates apply, depending on when the qualified property is acquired and service: [IRC 68(k)] 200: //0 9/8/0: 50% 9/9/0 2/3/0: 00% 20: 00% : 50% For long-production-period property and certain aircraft, the service dates are extended one year. Note: For, the Section 280F limit on depreciation for passenger autos is also increased by $8,000 for qualified property and no AMT adjustment applies to property for which the special depreciation allowance is claimed. The election to forego the special depreciation allowance and instead increase the limit on certain credits is extended one year to assets (204 for long-production-period property and certain aircraft) [IRC 68(k)(4)(J)]. The election (available only to corporations) can be made for Round Three property, which is property eligible for the special depreciation allowance solely because it meets the requirements under the extension of the special depreciation allowance for certain property service after 202. However, corporations that have already made this election for an earlier year can elect to not apply the election to Round Three property. The rule providing that bonus depreciation claimed for certain property can be ignored when determining the completion percentage for the percentage-of-completion accounting method is extended for one year. [IRC 460(c)(6)] 50% special depreciation was due to expire for property service after 202 ( for long-production-period property and certain aircraft). Expired for property placed in service after 202 ( for long-production-period property and certain aircraft). Expired for property placed in service after 202 ( for long-production-period property and certain aircraft). Copyright Thomson Reuters Handbooks American Taxpayer Relief Act of 202 7
Estate and Gift Tax Estate and Gift Tax Exclusion Amount Estate and Gift Tax Rate Certain Provisions Made Permanent Transfer of Spouse s Unused Exclusion Amount Effective Date and and and and Trust and Estate Income Taxes Estate and Trust Income Tax Rates and American Taxpayer Relief Act of 202 (Continued) Changes First Effective in New Law After 202, the combined estate and gift tax exclusion amount is $5,000,000 (indexed for inflation). The estate tax exclusion is increased by any deceased spousal unused exclusion amount (see below). [IRC 200(c)] For decedents dying, and gifts made, after 202, the maximum estate and gift tax rate is 40%. [IRC 200(c) and 2502(a)] Various estate tax provisions scheduled to sunset are made permanent, including: Deduction for state death taxes (in lieu of state death tax credit). Repeal of the estate tax deduction for qualified family-owned business interests (QFOBIs). Expanded availability of estate tax exclusion for qualified conservation easements. Special rules regarding the allocation of the GST exemption. (Act 0) The executor of a deceased spouse s estate can elect to transfer any unused estate tax exclusion amount to the surviving spouse. [IRC 200(c)(4)] The income tax rates for estates and trusts for years beginning after 202 are: 5%, 25%, 28%, 33% and 39.6%. Before Law Change The combined exclusion amount after 202 was $ million. The maximum estate tax rate for decedents dying after 202 was 55%. After 202, rules revert to those in effect in 200. After 202, a surviving spouse could not use an unused estate tax exclusion amount. Tax rates reverted to the following for tax years beginning after 202: 5%, 28%, 3%, 36% and 39.6%. End of Table Changes First Effective in Notes 8 Handbooks American Taxpayer Relief Act of 202 Copyright Thomson Reuters