Details of Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (the 2010 Tax Relief Act)

I received an informational email from a good friend and wanted to share the specifics. It presents in great detail the specifics of the recent legislation on taxes and unemployment. I have also included her contact information below for questions that you may have.

Late last night, the House passed the Senate-approved Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (the 2010 Tax Relief Act), clearing the Act for the President's signature. The 2010 Tax Relief Act provides a 2-year extension of the Bush tax cuts and a two-year AMT patch. It also addresses estate, gift and GST taxes. Below are some of the key points of the 2010 Tax Relief Act.

Income taxes. Income tax rates for individuals will stay at 10%, 15%, 25%, 28%, 33% and 35%. The 15% tax bracket for joint filers will remain at 200% of the 15% tax bracket for individual filers.

Capital Gain. The maximum tax rate of 15% on long-term capital gain (subject to certain exceptions) has been extended 2 years.

AMT. The Act contains an AMT “patch” for two years. For 2010 and 2011, several nonrefundable personal credits also will be permitted to offset the AMT.

Estate Tax. For 2011 and 2012 the applicable exclusion amount is $5 million and the top tax rate is reduced to 35%. The estates of decedents who passed away in 2010 may choose between (1) estate tax with the $5 million exemption and 35% top tax rate plus a step-up in basis or (2) no estate tax and modified carryover basis (the rules in 2010 that we have been dealing with all year). For estates of decedents dying after Dec. 31, 2010, the executor of a deceased spouse's estate may transfer any unused exemption to the surviving spouse (i.e. portability of the unused applicable exclusion).

Gift Tax. The Act reunifies the estate and gift taxes for 2011 and 2012, permitting use of the $5 million applicable exclusion amount during lifetime or upon death. The top gift tax rate is 35%.

GST. For 2011 and 2012, the GST exemption is $5 million. These rules apply to gifts after December 31, 2010. This increased GST tax exemption is available to 2010 decedents and for 2010 gifts, and may be allocated to a trust created or funded during 2010. The Act reactivates the GST tax for 2010, but it sets the GST tax rate for transfers made during 2010 at 0%, effectively allowing the direct skip gifts made in 2010 to stand but also permitting taxpayers to allocate GST exemption to 2010 transfers into trust. The GST tax rate for 2011 and 2012 transfers will be 35%.

2010 Estate Tax and GST Tax Return Extension. For a decedent dying and GST transfers after Dec. 31, 2009, and before date of enactment of the Act, the due date for the Federal estate tax return or GST tax return, payment of tax, and disclaimers is not to be earlier than nine months after the enactment date.

Tax Breaks for Individuals and Businesses. The 2010 Act includes new incentives for businesses to invest in machinery and equipment and also reinstates several expired tax breaks for individuals and businesses. The list is several pages long, and so we have not included it here.

This summary is based on the Senate passed version of the Act and the Act has not yet been signed into law. Please contact us if you have questions about how these pending tax changes may affect you or if you would like more information.

IRS Circular 230 Notice

To the extent that this communication concerns federal tax issues, this communication is not intended to be used and cannot be used by any taxpayer to avoid penalties

Lauren J. Wolven

Horwood Marcus & Berk Chtd.

500 W. Madison Street, Ste. 3700

Chicago, IL 60661

We moved October 1, 2010. Please note our new address.

direct dial: (312) 606-3239

mobile: (312) 515-8240

e-mail: lwolven@hmblaw.com

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This electronic transmission and any documents accompanying it may contain confidential information belonging to the sender which is protected by the attorney-client privilege. The information is intended only for the use of the individual named above. If you are not the intended recipient, you are hereby notified that any disclosure, copying, distribution, or the taking of any action in reliance on the contents of this message is strictly prohibited. If you have received this transmission in error, please immediately notify us by telephone and permanently delete this message.

IRS Circular 230 Notice

To the extent that this communication concerns federal tax issues, this communication is not intended to be used and cannot be used by any taxpayer to avoid penalties.