Fiscal Cliff Modified

About 2 hours ago the House in Congress voted to pass the fiscal bill that originated in the Senate. It certainly does not address everything, and there is plenty of work still to be done. But this blog is not intended to be a political platform, but general information on taxes.

The bill is over 150 pages in length and contains 104 major sections, some of which address more than one tax issue. This blog will not address all of these. Or most of these. Or even a fair minority. But here are some key points that affect a lot of individuals.

• Two years ago Congress made a temporary adjustment to the payroll tax that employees pay, reducing the amount by 2%. That was extended for 2012 as the economy was still hurting. This temporary item has expired and was not extended. Some will lament this is a 2% tax increase, while others will acknowledge that a temporary reduction simply expired.
• AMT is a nasty tax issue that hits only the middle class. While it would be best if this simply went away, at least the annual "patch" was done with indexing for inflation. Finally there will be less ambiguity for those who attempt to create a tax strategy for the year. This will still hit some, but the conditions are now well understood by tax professionals.
• The Child Tax Credit is extended for 5 years (through 2017). That leaves the credit at $1000 per child per year through age 16. There are phase-out factors still.
• There are tax rate increases for those with Adjusted Gross Income over $400,000 ($450,000) for married but those details are too extensive to be treated here. Same for the return of certain phase-outs on itemized deductions and personal exemptions.
• Reduced long-term capital gain rates are extended for those with incomes below $400,000 ($450,000 if married). This too provides for some potential tax planning for some taxpayers.
• The deduction for college tuition was extended through 2013.
• The American Opportunity Tax Credit (replaced the Hope Credit for college tuition) is extended for 5 years (through 2017).
• School teachers expense deduction was extended through 2013.
• The treatment of mortgage insurance as interest was extended through 2013.
• The deduction of state and local sales taxes in place of state income taxes was extended through 2013.
• The ability to exclude from taxable income the debt discharged related to acquisition indebtedness on a principle residence was extended through 2013. (No surprise on this one!)
• The ability to make charitable contributions directly from an IRA and not have to claim the distribution as income (nor does one get to claim the contribution) was extended through 2013. Furthermore  there are provisions to assist taxpayers who desired this but may not have done it "by the book." There is even a provision to do this in January 2013 as a 2012 act. This indicates a very favorable attitude of Congress toward this tax provision.

As I indicated, there are many more issues. It will take some time even for tax practitioners to digest all of what changed and what did not, but if you have a question about a particular item of personal interest, then ask your tax professional. Just don't expect them to have all answers for every provision too soon.