TAX RELIEF ACT OF 2010 – CRITICAL ITEMS YOU SHOULD KNOW (CONTINUED)
On Dec 17, 2010, President Obama signed into law the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010. The bill’s total cost to the US Treasury is $858 billion. Individual taxpayers will receive the bulk of the benefit as the bill targets some $700 billion in tax breaks toward them. The following is a summary of certain tax provisions in this bill:
EARNED INCOME CREDIT
EGTRRA and subsequent legislation temporarily increased the beginning and end points of the earned income tax credit (EITC), increased the credit for three or more children and made other taxpayer friendly changes. Legislation also simplified the definition of earned income, eliminated the rule that reduced a taxpayer’s EITC by the amount of AMT liability, reformed the relationship test, modified the tie-breaking rule, and gave the IRS additional math error authority. All these enhancements were subject to the general EGTRRA sunset of December 31, 2010. The 2010 Tax Relief Act extends the enhanced EITC for two years, through December 31, 2012.
AMERICAN OPPORTUNITY TAX CREDIT
The 2009 Recovery Act enhanced and renamed the Hope education credit as the American Opportunity Tax Credit (AOTC) for 2009 and 2010. The 2010 Tax Relief Act extends the AOTC for two years, through December 31, 2012. Also extended are income limitations (the AOTC begins to phase out for single individuals with modified AGI of $80,000 ($160,000 for married couples filing jointly) and completely phases out for single individuals with modified AGI of $90,000 ($180,000 for married couples filing jointly).
100% BONUS DEPRECIATION
Bonus depreciation for qualifying investments made after September 8, 2010 through December 31, 2011 will be eligible for 100% bonus depreciation. Property placed in service in 2012 will be eligible for 50% bonus depreciation. Bonus depreciation is generally not limited to use by smaller businesses or capped at dollar levels.
BUSINESS ENGERY INCENTIVES
Business energy incentives extended by the 2010 Tax Relief Act are:
• Credits for biodiesel and renewable diesel fuel (two years)
• Credit for refined coal facilities (two years with modifications)
• New energy efficient home credit for qualified builders and manufacturers (homes purchased before January 1, 2012)
• Excise tax credits and outlay payments for alternative fuel and alternative fuel mixtures (two years)
• Sales of electric transmission property (sales before January 1, 2012)
• Percentage depletion for oil and gas from marginal wells (two years)
• Grants for certain energy property in lieu of tax credits (variable)
• Tax credits and outlay payments for ethanol and duties on imported ethanol (one year with modifications)
• Energy efficient appliance credit (one year with modifications)