Fiscal Cliff Legislation

The main areas which may impact appraisers from the fiscal cliff legislation include the estate tax exemption, charitable donation restrictions, and capital gains rates.

The fiscal cliff legislation does not changes the $5 million exemption ($10 million joint), but does increase the rate from 35% to 40%.  The exemption will be adjusted based upon the inflation rate in the future.

According to the Tax Foundation, Capital gains tax and dividends tax will be 20 percent for taxpayers with income over $400,000 (single) and $450,000 (joint filers). This does not include the new 3.8 percent health care tax on investment income above $200,000 (single) and $250,000 (joint filers) in adjusted gross income, so the top rate for capital gains and dividends will be 23.8 percent. For lower income levels, the tax will be 0 percent, 15 percent, or 18.8 percent. (Update) Regarding collectibles and capital gains, the rate remains the same at 28%.

Limits itemized deductions (Pease) for adjusted gross income over $250,000 (single), $275,000 (head of household) and $300,000 (joint filers).  The Chronicle of Philanthropy states "It reinstates a provision eliminated in 2010 that reduces itemized deductions by 3 percent of the amount that household income exceeds $300,000. Write-offs grow more limited the more taxable income a person has and could reduce the value of deductions by up to 80 percent for the highest-income taxpayers, according to the Tax Policy Center."  Overall a rather minor change and restriction in charitable donation policy.