President Obama's tax deal: What's in it for property owners and developers?

On Friday, December 17, President Obama signed the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010. This act put to rest many questions about how Congress and the President would handle the scheduled expiration of the Bush Tax Cuts on January 1, 2011, as well as other pressing issues of taxation and spending, such as unemployment insurance and the continuation of certain tax credits and opportunities. For Individuals The act has a definitive centerpiece: the 2 year extension of the Bush Tax Cuts for all Americans. President Obama and Congress decided to extend the tax rates at all income levels for two years, meaning that tax rates in 2011 will remain where they were in 2010 for income, capital gains, etc., and Congress will revisit the issue in 2012. Specifically, income taxes will continue to have a top rate of 35%, while capital gains and qualified dividends will continue to be taxed at 15%. Another significant piece of the legislation is an extension of unemployment benefits for an additional 13 months in order to help those who have been unemployed for the previous limit of 99 weeks. Also helpful for many Americans is a cut in the employee share of Social Security Tax from 6.2% to 4.2%. Self-employed individuals will pay a combined rate of 13.3%, down from 15.3%. This cut is expected to be very helpful in putting money directly in the pockets of American consumers and inject billions into the economy. The estate, gift, and generation-skipping transfer tax rates will also be getting a significant revision under this act. The exemption for all has been raised to $5 million, and the maximum rate for all has been reduced to 35% for 2010, 2011, and 2012. The act also extends a great number of tax incentives that were set to expire or revert to higher rates at the end of the year. Among these are the: * The American Opportunity Tax Credit for qualifying higher education expenses * Child Care Credit for employers providing healthcare to their employees' children * Adoption Credit for individuals adopting children * Earned Income Credit for qualifying taxpayers with three or more children * Dependent Care Credit for those with children under age 13 or incapacitated dependents/spouses * Marriage Penalty relief in the form of an increased standard deduction and a larger tax bracket * The Child Tax Credit will remain at $1,000 per child, rather than reverting to $500 per child, through the end of 2012 Finally, the act creates a patch for the Alternative Minimum Tax both retroactively for 2010 and extended through 2011, which will prevent roughly 20 million Americans from having to pay AMT. For Businesses One of the boldest business tax provisions in the bill is an increase in bonus depreciation from 50% to 100% for acquisitions of qualified trade or business property made between September 9, 2010 and the end of 2011. In addition, the act further extends a 50% depreciation for such property and equipment put into service in 2012. A very useful provision for developers and property owners, the act has extended the 15 year recovery period for leasehold, restaurant, and retail improvements. Furthermore, the 100% exclusion on gains from the sale of small-business qualified stock has been extended through the end of 2012. The Research and Development Credit, which was scheduled to be terminated at the end of 2009, has been revived through the end of 2011, and, what's more, will be applicable for 2010 as well. Another provision receiving an extension is Section 179 Expensing. The Small Business Jobs Act passed in September raised 179's expense and investment limits for 2010 and 2011 to $500,000 and $2 million, respectively. The new Act will provide raised limits on 179 Expensing from 2012 onward, although at a much lower (and less advantageous) rate of $25,000 and $200,000. The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 is a hefty piece of legislation, to be sure. The good news is that there are plenty of opportunities for property owners, developers, and individuals nationwide to take advantage of the opportunities therein. Call your financial advisor for further advice on how these and other provisions will help you save money in 2011. Vincent Paolucci, CPA, MST, is a tax partner at Grassi & Co., CPAs, Jericho, N.Y.