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President Obama signed into law the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act last week. Below is a brief summary of key provisions in the act, as analyzed by the National Lumber and Building Material Dealers Association (NLBMDA).
Estate Tax: The law institutes a $5 million exemption (indexed beginning in 2012) and 35% rate on estates for 2011 and 2012. While not permanent, this is based on the Lincoln-Kyl compromise previously endorsed by the NLBMDA. The proposal is effective Jan. 1, 2010, but allows an election to choose no estate tax and modified carryover basis for estates arising on or after Jan. 1, 2010 and before Jan. 1, 2011. The proposal sets a $5 million generation-skipping transfer tax exemption and 0% rate for the 2010 year.
Individual Tax Rates: Extends the 35% tax bracket for an additional two years.
Payroll Tax: A temporary 2% reduction in employee-paid Social Security payroll taxes for 2011.
Capital Gains & Dividends: Extends the current capital gains and dividends rates (15% for those in the 25% bracket and above) through 2012.
New Energy-Efficient Home Credit (45L): Extended through 2011 (lapsed after 2009).
Energy Efficiency Home Remodeling Credit (25C): Extended through 2011 at pre-ARRA levels, 10% up to $500, with a $200 cap on window purchases. Changes product criteria to Energy Star for windows, doors and skylights. (This was previously 30% up to $1,500 for 2009-2010).
Bonus Depreciation: The law extends and temporarily increases the bonus depreciation provision for investments in new business equipment. For investments placed in service after Sept. 8, 2010, and through Dec. 31, 2011, the act provides for 100% bonus depreciation. For investments placed in service after Dec. 31, 2011, and through Dec. 31, 2012, the act provides for 50% bonus depreciation.
Section 179 Expensing: In 2007, tax cuts temporarily increased section 179 thresholds to $125,000 and $500,000 respectively, indexed for inflation. These amounts have been further increased and extended several times on a temporary basis, including most recently as part of the Small Business Jobs Act, which increased the thresholds to $500,000 and $2,000,000 for the taxable years beginning in 2010 and 2011. This proposal extends the 2007 maximum amount and phase-out thresholds for taxable years beginning in 2012, at $125,000 and $500,000 respectively, indexed for inflation. The proposal is effective for taxable years beginning after Dec. 31, 2011.
Alternative fuels credit: The act extends through 2011 the $0.50 per gallon alternative fuel tax credit.
Tax benefits for certain retail improvements: The act extends for two years (through 2011) the special 15-year cost recovery period for certain leasehold improvements, restaurant buildings and improvements, and retail improvements.