Happy New Year everybody~! We hope you’ve all enjoyed the holidays and are well rested for the big, New Year we’ve got to get on with.
Below we’ve highlighted some tax law “changes” that took effect with the New Year. The business changes are significant, especially for well managed real estate holders and for other capital intensive businesses. The highlight to the individual items is the temporary reduction in the FICA tax rate for wage earners. Happy Reading
Business changes taking effect in 2012 and late 2011. Business changes effective in 2012 (or went into effect in December of 2011and are thus “new”), include the following:
... Longer write-off period for certain property. For specialized realty assets (qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property) placed in service after 2011, a 39-year (up from 15-year) write-off period generally applies.
... Reduced bonus depreciation allowance for qualified property. For qualified property acquired and placed in service after 2011 and before 2013 (after 2012 and before 2014 for aircraft and certain long-production period property), a 50% (down from 100%) bonus first-year depreciation allowance applies under Code Sec. 168(k).
... Reduced expensing. For a tax year beginning in 2012, the Code Sec. 179 expensing election is reduced to $139,000, with a $560,000 investment-based ceiling (down from $500,000/$2 million). For tax years beginning after 2012, it will be further reduced to $25,000 with a $200,000 investment-based ceiling. Additionally for a tax year beginning after 2011, expensing can no longer be claimed for qualified real property.
Individual changes taking effect in 2012. Individual changes that apply in 2012 include the following. Note that Congress may retroactively amend one or more of these rules:
... 2012 Social Security Wage Base. The wage base for “FICA” tax increased from $106,800 in 2011 to $110,100 in 2012. As in prior years, there is no limit to the wages subjected to the Medicare tax, so all wages are subject to the 1.45% tax (which is matched by the employer). Currently, there is a 2 month FICA tax rate of 4.2% for employees through the end of February and the employer portion of the tax will be 6.2% for the entire year. Pending further legislation, the employee’s tax rate will increase back to 6.2% on March 1, 2012. We think the reduced rate will ultimately be enacted for all of 2012 and we’ll keep you posted on those developments.
... Reduced alternative minimum tax (AMT) exemption amounts. Absent another AMT “patch,” the AMT exemption amounts for tax years beginning after 2011 revert to the significantly lower “permanent” amounts of $33,750 for unmarried taxpayers, $45,000 for joint filers, and $22,500 for married filing separately. Crikey! If there’s no patch enacted, this little beauty will reach out and bite tens of millions of taxpayers [make sure to read that last passage out loud in your best “Crocodile Hunter” Australian accent]. We expect a legislative “patch” to be worked out either early in the year or some time after the November elections. Again, we’ll keep you posted.
... Reduced adoption credit. For 2012, the total expenses that may be taken as a credit for all tax years with respect to the adoption of a child by the taxpayer will be limited to $12,650 (down from $13,360 for 2011), and the credit for the adoption of a special-needs child will also be $12,650 (down from $13,360 for 2011). Furthermore, the adoption credit will no longer be refundable.
... No parity for exclusion from income for employer-provided mass transit and parking benefits. For 2012, unless Congress changes the rules, the exclusion for qualified parking rises from $230 to $240 due to an inflation adjustment, but falls from $230 to $125 for employer-provided transit and vanpooling benefits. Again, we expect that the higher exclusion amount for parking will be extended in 2012.
... Reporting foreign assets. Beginning in 2012, U.S.
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