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Tax Breaks for Individuals Retroactively Reinstated and Extended by the 2010 Tax Relief Act

posted Dec 29, 2010, 12:17 AM by NPROSS Administrator

Above-the-Line Deduction for Educator Expenses Reinstated and Extended

Eligible elementary and secondary school teachers may claim an above-the-line deduction for up to $250 per year of expenses paid or incurred for books, certain supplies, computer and other equipment, and supplementary materials used in the classroom. Under pre-Act law, the educator expense deduction didn't apply for tax years beginning after 2009.

New law. The 2010 Tax Relief Act retroactively extends the educator expense deduction for two years so that it applies to expenses paid in incurred in tax years 2010 and 2011. (Code Sec. 62(a)(2)(D), as amended by Act Sec. 721)

State and Local Sales Tax Deduction Reinstated and Extended

Taxpayers may elect to deduct state and local general sales and use taxes instead of state and local income taxes. Under pre-Act law, this deduction was unavailable for tax years beginning after 2009.

New law. The 2010 Tax Relief Act retroactively extends this provision for two years so that taxpayers can elect to deduct state and local sales and use taxes for tax years beginning before Jan. 1, 2012. (Code Sec. 164(b)(5), as amended by Act Sec. 722)

Liberalized Rules for Qualified Conservation Contributions Reinstated and Extended

A taxpayer's aggregate qualified conservation contributions (i.e., contributions of appreciated real property for conservation purposes) are allowed up to the excess of 50% of the taxpayer's contribution base over the amount of all other allowable charitable contributions (100% for qualified farmers and ranchers), with a 15-year carryover of such contributions in excess of the applicable limitation. Under pre-Act law, these rules didn't apply to any contribution made in a tax year beginning after Dec. 31, 2009, and contributions made thereafter would be subject to the otherwise applicable 30% limit for capital gain property (50% limit for qualified farmers and ranchers).

New law. The 2010 Tax Relief Act retroactively extends for two years the 50% and 100% limitations on qualified conservation contributions of appreciated real property so that they apply to contributions made in tax years beginning before Jan. 1, 2012. (Code Sec. 170(b)(1)(E), as amended by Act Sec. 723)

Above-the-Line Deduction for Higher Education Expenses Reinstated and Extended

A taxpayer may claim an above-the-line deduction for qualified tuition and related expenses for higher education paid by that taxpayer during the tax year, subject to applicable adjusted gross income (AGI) and dollar limits. Under pre-Act law, this deduction wasn't available for tax years beginning after Dec. 31, 2009.

New law. The 2010 Tax Relief Act retroactively extends the qualified tuition deduction for two years so that it can be claimed for tax years beginning before Jan. 1, 2012. (Code Sec. 222(e), as amended by Act Sec. 724)

RIA observation: For other education-related provisions that were extended by the 2010 Tax Relief Act's sunset relief provisions, see RIA Special Study “2010 Tax Relief Act's Two-Year “Sunset Relief” Protects Key Individual Tax Breaks” in Newsstand e-mail 12/20/2010.

Nontaxable IRA Transfers to Eligible Charities Reinstated and Extended

Taxpayers who are age 70 1/2 or older can make tax-free distributions to a charity from an Individual Retirement Account (IRA) of up to $100,000. These distributions aren't subject to the charitable contribution percentage limits since they are neither included in gross income nor claimed as a deduction on the taxpayer's return. Under pre-Act law, these rules didn't apply to tax years beginning after Dec. 31, 2009.

New law. The 2010 Tax Relief Act retroactively extends this provision for two years so that it's available for charitable IRA transfers made in tax years beginning before Jan. 1, 2012. (Code Sec. 408(d)(8)(F), as amended by Act Sec. 725) In addition, a taxpayer can elect for such a distribution made in January of 2011 to be treated as if it were made on Dec. 31, 2010. (Act Sec. 725(b)) Thus, a qualified charitable distribution made in Jan. 2011 is allowed to be (1) treated as made in the taxpayer's 2010 tax year and thus so allowed to count against the 2010 $100,000 limitation on the exclusion, and (2) treated as made in the 2010 calendar year and so allowed to be used to satisfy the taxpayer's minimum distribution requirement for 2010. (Committee Report)

Look-through Treatment of Certain RIC Stock in Determining Nonresidents' Gross Estate Reinstated and Extended

A certain proportion of the stock in a regulated investment company (RIC) owned by a nonresident alien decedent isn't treated as U.S. property for purposes of calculating the decedent's estate. Under pre-Act law, this provision didn't apply to decedents dying after Dec. 31, 2009.

New law. The 2010 Tax Relief Act retroactively extends this provision for two years so that it's available for decedents whose deaths occur in 2010 and 2011. (Code Sec. 2105(d)(3), as amended by Act Sec. 726)

Increase in Excludible Employer-Provided Mass Transit and Parking Benefits Extended

For 2010, an employee may exclude from income up to $230 per month in qualified employer-provided mass transit and vanpool benefits. This exclusion was previously limited to $120 per month, which created a disparity with other qualified transportation fringe benefits (such as parking) that were excludible up to $230; however, for any month beginning on or after Feb. 17, 2009 and before 2011, the monthly exclusion limit for employer-provided mass transit and vanpooling benefits was increased to $230. Under pre-Act law, the disparity was scheduled to return after Dec. 31, 2010, and mass transit and vanpool benefits extended to employees after that date would only be excludable up to $120 per month.

New law. The 2010 Tax Relief Act extends this increase in the monthly exclusion for employer-provided transit and vanpool benefits, equal to that of the exclusion for employer-provided parking benefits, through Dec. 31, 2011. (Code Sec. 132(f)(2), as amended by Act Sec. 727)

RIA observation: Based on Consumer Price Index (CPI) data, RIA has calculated that this exclusion will remain at $230 per month in 2011.

New Provision Retroactively Disregards Refunds in Determining Eligibility for Assistance from Federal and Federally Assisted Programs

New law. The 2010 Tax Relief Act adds Code Sec. 6409, which provides that for purposes of determining a taxpayer's eligibility for benefits or assistance under any federal program or federally-financed state or local program, any refunds made to the taxpayer aren't taken into account as income or resources for a 12-month period after receipt. This new provision is effective for amounts received between Dec. 31, 2009 and Dec. 31, 2012. (Code Sec. 6409, as added by Act Sec. 728)

Treatment of Mortgage Insurance Premiums as Deductible Qualified Residence Interest Extended

Mortgage insurance premiums paid or accrued by a taxpayer in connection with acquisition indebtedness with respect to the taxpayer's qualified residence are treated as deductible qualified residence interest, subject to a phase-out based on the taxpayer's AGI. Under pre-Act law, this provision only applied to premiums paid or accrued before Jan. 1, 2011.

New law. The 2010 Tax Relief Act extends this provision for one year so that a taxpayer can deduct, as qualified residence interest, mortgage insurance premiums paid or accrued before Jan. 1, 2012. (Code Sec. 163(h)(3)(E), as amended by Act Sec. 759)

Temporary Exclusion of 100% of Gain on Certain Small Business Stock Extended

For 2010, a taxpayer may exclude all of the gain on the disposition of qualified small business stock acquired after Sep. 27, 2010 and before Jan. 1, 2011, and 75% of the gain from such stock acquired after Feb. 17, 2009 and before Sep. 28, 2010. Under pre-Act law, the exclusion would be limited to 50% of gain for stock acquired after Dec. 31, 2010.

New law. The 2010 Tax Relief Act extends this provision for one year so that taxpayers may continue to exclude 100% of gain from the disposition of qualified small business stock acquired before Jan. 1, 2012. (Code Sec. 1202(a)(4), as amended by Act Sec. 760)

Source:  Federal Tax Updates on Checkpoint Newsstand tab 12/17/2010 

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