Momentous tax changes may be lurking in 2013. It may not matter who is elected president this November, liberal, conservative, or middle-of-the-road. It’s really who controls Congress that’s important, and if they can, or will, work with the president. And, unless Congress acts, the Bush-era tax rate breaks—those enacted in 2001 and 2003 (EGTRRA and JGTRRA) and extended by Congress—will come to an end (or sunset) on Jan. 1 of 2013.
The most likely scenarios are that tax breaks may be terminated, deferred entirely or deferred for all taxpayers other than those with higher incomes. Or perhaps something else, depending on our lawmakers. Congress might just defer the sunsets, with a few changes and modifications, and extend expiring tax provisions.
Besides tax rate breaks, there are many other tax areas that will be affected. Let’s look at a few.
Capital Gains and Dividend Taxes
Most long-term capital gains are taxed at a 15% rate (with some taxed at 0%), with qualified dividend income taxed at the same rates. Under the sunset, most long-term capital gains will be taxed at a maximum rate of 20% (18% for certain assets held more than five years). And dividends for individuals will be taxed at ordinary income rates.
Estate and Gift Taxes
For 2011 and 2012 the estate and gift tax rates are the same or “unified.” Come 2013, if Congress doesn’t act, the rules that would have been in effect back in 2001 will apply. Some of them: the applicable exclusion amount will be $1 million (now $5.12 million), and the maximum estate and gift tax will be 55% (now 35%).