5 Things a New York City CPA Should Know

5 Things a New York City CPA Should Know About the New Tax Legislation

On Jan. 1, Congress passed the American Taxpayer Relief Act of 2012 in an effort to avoid automatic income tax increases for millions of Americans. New York City CPA s should know this last-minute legislation included a variety of tax provisions related to income and estate taxes, credits and deductions.

New York City CPA:

The following are five key provisions to know about the new fiscal cliff tax bill.

1. Higher Income Level For New Long-Term Capital Gains Rate

Starting in 2013, the tax on capital gains and dividends will rise to 20 percent from the current 15 percent, but only for taxpayers who earn more than $400,000 in taxable income ($450,000 for couples).

2. Lower Income Level For New Medicare Capital Gains Rate

While the legislation applies the new capital gains rate to a higher income threshold than President Obama originally proposed, be aware that taxpayers with less income might also get hit with a higher rate. For taxpayers with an adjusted gross income above $200,000 ($250,000 for couples filing jointly), their capital gains might be subject to a 3.8 percent Medicare tax. Taxpayers above the $400,000 income threshold are subject to both tax rates, for a total of 23.8 percent on capital gains.

3. Impact of Selling a Home in 2013

For homeowners preparing to sell their principal residence this year, note that the sale of a home could result in a capital gain that increases a taxpayer’s net investment income and/or adjusted gross income. Clients whose incomes are pushed above these thresholds will be subject to the increased capital gains taxes on profits that exceed $250,000 (individual) or $500,000 (couple) from the sale of their home.

4. Mortgage Insurance Deduction

The Taxpayer Relief Act both revived and reinstated the tax deduction for private mortgage insurance. Furthermore, the deduction appears to be retroactive to include premiums paid in 2012. The full deduction is available to single and married-filing-jointly homeowners with adjusted gross income of $100,000 or less. Married couples who file separately may write off 50 percent of premiums, while taxpayers with adjusted gross income above $100,000 may qualify for a partial deduction on a sliding scale.

5. Itemized Deductions Reduced

Despite the fact that the income tax rate was raised for taxpayers earning more than $400,000, those earning less might be limited in the amount of deductions they can claim – which will in effect raise their tax liability. For taxpayers with adjusted gross income exceeding $250,000 ($300,000 for couples), this reinstated provision eliminates up to 80 percent of total itemized deductions. The Pease limitation, named after the congressman who first initiated it in 1990, is designed to reduce the benefit of charitable contributions, mortgage interest and property tax deductions.

Many times clients meet with their New York City CPA in November or December to discuss year-end tax moves before it’s too late. However, with all of the policy uncertainty that plagued the end of 2012, you might not have been able to offer sound tax advice by year-end. Now that we know more, it’s a good time to invite clients in for a comprehensive tax planning meeting. (New York City CPA)

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