The Senate in the early morning hours of January 1, 2013 passed a bill to avert the "Fiscal Cliff". This bill is now headed to the House and it may be passed, not passed or amended and passed back to the Senate for further agreement.
Assuming that the Bill is passed as is, there are several major benefits to farmers included in the Bill:
- The Bush tax rates would be maintained for income under $400,000 single and $450,000 married filing joint. For income in excess of these amounts, the rate would be 39.6%,
- For those taxpayers in the 39.6% marginal tax rate, their maximum capital gains rate would be 20% (plus the 3.8% Medicare surtax, if applicable for a maximum 23.8% capital gains rate),
- Permanently fixes the alternative minimum tax by increasing the exemption amounts to reflect inflation from the inception of the tax and includes an annual inflation adjustment to the exemption amount,
- The lifetime exemption amount for gifts and estates would be permanently maintained at current levels ($5.12 million indexed for inflation, 2013 amount would be close to $5.25 million), however, the top rate would be 40% instead of the current 35%,
- 50% bonus depreciation would be extended through the end of 2013,
- A major increase of the Section 179 deduction to the old 2010/2011 level of $500,000 for 2012 and 2013 (farm equipment manufacturers will be very happy); this deduction will revert back to $25,000 beginning in 2014,
- If you convert an S corporation in 2012 or 2013, the built-in gains tax only applies for 5 years, not 10 under the old law.
The phase-out of itemized deductions and exemptions for certain high income earners will be brought back into effect for 2013 and beyond.
Certain extenders have been temporarily extended:
- The special exclusion for income from cancellation of qualified mortgage debt (through 2013),
- The deduction for state and local sales tax (through 2013),
- The exclusion from income of IRA donations to charity (through 2013). This one allows a "do-over" for IRA distributions received in December 2012, if they are transferred to charity before February, 2013. Also, for 2013, this may allow you to keep your adjusted gross income under the Medicare surtax levels,
The 2% reduction in the FICA rate for employees from 6.2% to 4.2% was allowed to expire. This will result in a payroll tax increase for all employed workers beginning today.
As we stated at the beginning of the post, this is not the law yet, but if a law is passed by both houses, it is extremely likely that it will retain most if not all of these provisions. We will keep you posted.