Understand provisions of 2010 Tax Relief Act

In December, Congress passed and President Barack Obama signed the 2010 Tax Relief Act. The bill brings significant tax-law changes for many Americans.

The National Society of Accountants (Dec. 20) breaks down some of the most important changes, including:

• Increased Alternative Minimum Tax exemption amounts. The act increases 2010 exemption amounts to $47,450 for individuals, $72,450 for married couples filing jointly and surviving spouses, and $36,225 for married couples filing separately.
• No change in tax rates. Individual tax rates will be held at the 2010 level for the next two years.
• Extended capital-gains tax rate. For 2010, qualified capital gains and dividends are taxed at a maximum rate of 15%. The act extends that rate through Dec. 31, 2012.
• Extended itemized deduction limitation. The "Pease" limitation--which reduces the total amount of a higher-income individual's otherwise allowable deductions--was suspended for 2010. It was scheduled to return at a projected level of income starting at $169,550. However, the act has extended the suspension through Dec. 31, 2012.
• Suspension of personal exemption phaseout (PEP) extended. The PEP reduced the total amount of exemptions for taxpayers with adjusted gross incomes exceeding the applicable threshold--$169,550 for singles and $254,350 for joint filers in 2011. The PEP was suspended for 2010, and the act extends that suspension through Dec. 31, 2012.
• Extended marriage penalty relief. The relief provision increased the basic standard deduction for married couples filing joint returns to twice the amount for a single taxpayer. The act extends marriage penalty relief through Dec. 31, 2012.