The 2011 year started with a lot of talk about tax reform to spur the economy, create jobs, and promote investment and capital spending. However, no meaningful changes happened and probably will not until after the 2012 election. The Tax Relief, Unemployment Insurance Reauthorization, and Jobs Creation Act of 2010 extended some 2011 tax breaks and expanded others.
EXPIRING TAX LAWS AT DECEMBER 31, 2011:
- Asset expense election – In 2011 the purchase of tangible personal property (new or used) could be expensed up to $500,000 phasing out when those purchases exceeded $2,000,000. For 2012, the maximum deduction will be $139,000 phasing out for property purchases over $500,000.
- Bonus depreciation – Eligible personal property put in service from September 8, 2010, through December 31, 2011, was eligible for an unlimited deduction (no phase-out) or 100% expensing as long as the equipment was purchased new. For property purchased in 2012, the deduction provided by the asset expense election is decreased to 50% of the cost of the property. To maximize the depreciation deduction, the asset expense election and the bonus depreciation rules will have to be considered together in order to figure the deduction.
- Qualified Leasehold Improvements – Generally leasehold improvements are depreciated over 39 years. However, improvements made to the interior of non-residential real property owned by a non-related party, restaurant, or retail property could be depreciated over 15 years using the straight-line method up to $250,000.
- Work Opportunity Credit – This credit benefited businesses hiring employees from certain disadvantaged groups, such as ex-felons, food stamp recipients, and disabled veterans.
- Research and Development Credit – This credit was equal to a portion of qualified research expenses.
EXTENDED TAX LAWS TO DECEMBER 31, 2012:
- Temporary payroll tax cut – A 2-percent reduction computed on the employee’s share of FICA tax until February 29, 2012.
- Capital Gains Rates – Top capital gain rates remain at 15% including qualified dividends.
- Estate Tax Threshold – Keeps the estate and gift exemption at $5,000,000.
- Estate Portability Rules – Permits a surviving spouse to use the unused estate and gift tax exemptions of the last deceased spouse.
- Annual Gifts – If the gifts per person do not exceed $13,000 per person no gift tax return needs to be filed.