Key Provisions in the New Tax Law
by Richard A. Blum,
CPA, JD, LL.M.
Senior Tax Manager, Elliot & Warren, PLLC
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On May 17, 2006, President Bush
signed into law the Tax Increase Prevention and Reconciliation
Act of 2005 (TIPRA). TIPRA contains investor tax breaks,
alternative minimum tax (AMT) relief, and several other
provisions with immediate and long-term impact on individuals and businesses.
The highlights of TIPRA are as follows:
-
AMT Relief for 2006 - TIPRA increases the AMT
exemption for 2006 to $62,550 for joint filers,
$42,500 for single filers and $31,275 for married
individuals filing a separate return. Even though
this appears to be only a modest increase over the 2005
AMT exemption amounts, it actually represents a substantial
increase since under pre-TIPRA law it was scheduled to drop
to the much lower amounts that were in effect for 2000.
-
Two-Year Extension (through 2010)
of Reduced Rates on Capital Gains
and Dividends - Currently, long-term
capital gains and qualified dividend
income are taxed at a maximum rate of 15%
through 2008. TIPRA extends these special
tax rates through 2010.
-
Unearned Income of Children
under Age 18 (rather than age 14)
Taxed at Parents' Rates After 2005 - Under the "kiddie tax" rules,
for 2005 and prior years, children
under age 14 at the end of the tax
year were taxed on their unearned
income (e.g., interest and dividends)
at their parents' marginal tax rate if
it exceeded a threshold amount
(e.g., $1,600 for 2005).
TIPRA increases the age
of children subject to
this tax to those under
age 18 effective for years
beginning after 2005.
For 2006, the threshold amount is $1,700.
-
Section 179 Deduction
Extended Through 2009 - Under current law,
businesses may expense
up to $100,000 (indexed for inflation)
of investments in depreciable assets.
The deduction phases out dollar-for-dollar
to the extent the cost of section 179
property for the year exceeds $400,000 (indexed for inflation).
TIPRA extends this deduction and phase-out
threshold through 2009.
For 2006, the indexed
section 179 amounts are $108,000 and $430,000 respectively.
Please note that this letter describes only
the highlights of the new tax law.
If you would like more details on any aspect
of this legislation, please call us at your earliest convenience. 704-333-8881 |
