Recent Tax Legislation Changes for 2011 and 2012

Agribusiness

By: Chris Coldiron, CPA, Tax Manager |  email

In addition to the changes made for Bonus Depreciation and 1099 reporting, several other items of interest were changed by the recent legislation for 2011 and 2012:
  • Section 179 expense limits have been changed. For 2011, the maximum expense is $500,000, and the maximum amount of property that may be placed in service before the deduction becomes limited is $2,000,000. For 2012, those figures are reduced to $125,000 and $500,000, respectively.
  • A payroll tax “holiday” was added for 2011 only. Employees will see their FICA tax reduced by 2% to 4.2%. Self-employed individuals will enjoy the same reduction, with their FICA rate set at 10.4%.
  • The maximum tax bracket for individuals, as well as corporations, will remain at 35% for 2011 and 2012.
  • The maximum individual capital gain tax rate of 15% remains in effect for both years, as does the application of this rate to “qualified dividends.” These preferential rates will not be “phased out” for higher income individuals as was reported in the popular press prior to enactment of the law. As the market continues to improve and profitable corporations begin issuing dividends, this change should result in substantial tax savings to many taxpayers.
  • Itemized deductions and personal exemptions will not be subject to phase-out for high-income individuals through 2012.
  • Individuals will be able to continue using nonrefundable personal credits to offset Alternative Minimum Tax for 2011.
  • The standard mileage rate, used in lieu of actual expenses and depreciation, has been set at $.51 per mile for 2011.
  • Under the new legislation, executors for decedents dying in 2010 have two options: 1. Apply the 2010 rules that were in effect at the decedent’s time of death. 2. Apply the new 2011 rules retroactively.
Most executors will find the election to retroactively apply 2011 rules beneficial as the gift and estate taxes have again been unified in 2011 and 2012 with a $5 million exclusion equivalent. In English, that means the estates of decedents dying from 2010 – 2012 will be able to enjoy the traditional “step-up” in basis of all estate assets, with the first $5 million exempt from tax. It also means that gifts up to this amount will also be exempt from tax. This $5 million will be inflation-adjusted for 2012.
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