written by Melinda Thurman

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Great discussion has been placed on the Tax Extenders expiring as of December 31, 2011 and the hope is that these extenders will be placed back into effect for current and future years. If these key elements are not extended, an increase in tax liability for every taxpayer is likely to take effect with the 2012 tax year. The following is a summary of the key elements expiring with their corresponding dates.

Key elements expiring December 31, 2011:

  • Alternative Minimum Tax (AMT) individual exemptions
  • Itemized deduction changes:
  1. Election to deduct State and local general sales taxes
  2. Election to deduct mortgage insurance premiums as deductible residence interest
  • Above-the-line-deductions for:
  1. Qualified tuition and related expenses
  2. Certain educational expenses above $250
  • Nonbusiness energy property credits
  • Tax free distributions from retirement plans to charitable organizations (up to $100,000 per year for taxpayers over the age of 70 ½)

Key elements expiring December 31, 2012:

  • Expanded Hope Credit (American Opportunity Credit) reduction
  • Work Opportunity Tax Credit for hiring of qualified veterans
  • Payroll Tax Cut (employee Social Security reverts back to 6.2% from 4.2%)

Significant Tax Implication
The most significant expiring tax extender is the removal of the Alternative Minimum Tax (AMT) individual exemptions, referred to as the ‘AMT Patch’. The individual exemption amounts are falling for taxpayers filing as single, married jointly and married separately. The amounts for single are falling from $48,450 to $33,750, married filing jointly from $74,450 to $45,000 and married filing separately from $37,225 to $22,500.

In addition, individuals will no longer be able to use most nonrefundable personal credits to offset the AMT. These reduced individual exemptions will cause more taxpayers to be subject to AMT on their tax returns, which results in a higher tax liability.

We will continually monitor new legislation that may extend these tax breaks and will post additional articles on our blog.