Congress stumbled on a cliff New Years Day and here’s what happened that will effect you:
Income Tax Rates: Single taxpayers earning incomes over $400,000 and couples earning over $450,000 will face a 39.6 percent tax rate instead of a 35 percent rate.
Married taxpayers earning more than $250,000 and single taxpayers earning more than $200,000 should note that an additional 0.9 percent tax will apply to wage income as a result of health care tax legislation.
(Source: PAN Card Seva).
Capital Gains and Dividends: The act permanently increases to 20 percent the tax rate applicable to capital gains and dividends received by married couples earning more than $450,000 and single filers earning more than $400,000. The 15 percent rate applicable to capital gains and dividends is permanently extended for taxpayers earning under these thresholds but at or above the 25 percent income tax bracket.
Married taxpayers earning more than $250,000 and single taxpayers earning more than $200,000 should note that an additional 3.8 percent tax will apply to capital gains and dividends derived from passive sources as a result of health care tax legislation.
Estate Tax: Individuals can permanently shield $5.12 million, to be indexed for inflation beginning in 2013, from the estate tax, and the top estate tax rate is 40 percent.
Alternative Minimum Tax: The act provides permanent AMT relief to maintain the number of AMT taxpayers at approximately 4 million as opposed to more than 30 million.
The following tax extenders benefitting firms involved in multifamily housing are extended through 2013:
Bonus Depreciation. Allows firms to expense, instead of depreciate over time, 50 percent of the cost of certain capital assets purchased in 2013.
Energy Efficient New Homes Tax Credit. Provides low-rise multifamily properties (three stories or less) with a $2,000 per unit tax credit for new residences that achieve a 50 percent energy savings for heating and cooling over the 2004 International Energy Conservation Code and supplements.
New Markets Tax Credit. Helps facilitate construction of mixed-used developments in distressed areas.
Low-Income Housing Tax Credit Fixed Rate. In 2008, the typically floating rate on the 9 percent tax credit was fixed at 9 percent. That fixed rate was set to expire for properties placed into service on or after December 31, 2013. It will now apply to any project that receives an LIHTC allocation prior to January 1, 2014.
New York State actually went over the condo and co-op tax cliff last Spring, but may take up a retroactive fix this month. The City’s Independent Budget Office weighed in this week with an analysis showing that the tax break unfairly benefitted Manhattan apartment owners and noting that amendments to phase out the benefit for non-resident owners and high value apartments are on the table in Albany. Strangely, the IBO thinks the problem is that apartments generally are under assessed relative to single family homes.