Qualified Improvements

15-Year Recovery Period for Qualified Improvements

The Tax Bill signed December 17, 2010 extends the 15-year recovery period through 2010 and 2011 for:

Qualified leasehold improvements
Qualified restaurant improvements, and
Qualified retail improvements.

The 15-year recovery period previously expired at the end of 2009. The extension applies to 2010 as well as 2011.

Expense Limits Increased to $125k

Code Sec. 179 Expensing Limits

Internal Revenue Code Sect. 179 expensing limits were raised to $125,000 with a $500,000 investment limit for 2012. The 2010 Small Business Jobs Act, which was signed in September, raised the expensing limits to $500,000 with a $2 million investment limit for 2010 and 2011. It also permitted, for the first time, expensing of up to $250,000 of Qualified Real Property, such as qualified leasehold, restaurant or retail improvements. The expensing of Qualified Real Property was not extended in the new tax act.

Bonus Depreciation -100%

Bonus Depreciation

The Tax Bill signed December 17, 2010 provides 100% First Year Bonus Depreciation created for qualified improvements made after September 8 2010 and before January 1, 2012. Bonus depreciation reverts back to 50 Percent for qualified 2012 improvements.

IRS issues new withholding tables

the Internal Revenue Service has issued new withholding tables based upon the changes in tax law reducing withholding for 2011.

Even though most employers use payroll services, it is a good idea to print out and read the chart so employees can understand the changes.

2010 Estate and Gift Tax Changes

Here is a detailed Explanation of the Estate and Gift Tax Changes:

2010

Estate Tax
*Basic exclusion amount: $5,000,000 Formerly called applicable exclusion amount
Unified credit: $1,730,800

*Maximum tax rate: 35%
Level where 35% rate begins: $500,000 But no tax until taxable estate + gifts > $5m


* Step-up in basis: Full step-up, unless estate elects out of estate tax

State death tax deduction: Still available on Line 3b (as it was in 2005-2009)

*Due date: No earlier than nine (9) months after date of enactment


*Carryover basis: Applicable only if estate elects out of estate tax

*Max basis increase available: $1.3m (plus $3m for property passing to spouse)

*Due date of new form (8939): No earlier than nine (9) months after date of enactment
Penalty for failure to report to the IRS: $10,000 per failure

Penalty for intentional disregard: 5% of FMV of property
Penalty for failure to report to beneficiaries/donee: $50 per failure

Capital gains tax rate: Proceeds in excess of adjusted tax basis subject to tax at the
applicable capital gains rate when sold (currently 15%).

Gift Tax No change
Exclusion amount: $1,000,000 (no change)
Maximum tax rate: 35% (no change)
Due date: April 18, 2011 (Emancipation Day observed on Friday, April 15, 2011)

New Estate Tax Law

Here is a quick summary of the new Estate Tax rates signed into law December 17, 2010

2010
Estate Tax
Exclusion amount: $5,000,000
Maximum tax rate: 35%
Carryover basis: Option to elect carryover basis instead of estate tax treatment

Gift Tax
Exclusion amount: $1,000,000 (no change)
Maximum tax rate: 35% (no change)

2011-12
Estate Tax
Exclusion amount: $5,000,000
Maximum tax rate: 35%

Gift Tax
Exclusion amount: $5,000,000
Maximum tax rate: 35% (no change)

Tax Bill Signed into Law

President Obama signed the Tax Extesnion into law. This continues the tax rates for 2 more years. Unfortuantely, Congress refuses to address tax simplification and making tax reduction permanent.

What will Happen to Estate Tax

The Democrats in the House are vowing to fight the Estate Tax exemption of $5m approved in the Senate. If no action is taken by December 31, the exemption will fall to $1m. Remember, this includes proceeds from Life Insurance policies, IRA's, pension plans, homes and real estate. Many estates will be heavily taxed (up to 55%.)