Changes we saw in 2010…
Income Limits for Roth IRA Conversions – In 2010, the income limitations on Roth IRA conversions was permanently repealed. In the years before 2010, if you made more than $100,000 you could generally not convert to a Roth. Going forward, you can convert your Traditional IRA to a Roth IRA regardless of the income you earn. I like this rule since the Traditional IRA was created long before the Roth.
State and Local Sales and Income Tax Deductions Rule – This one sounds confusing. Basically, beginning in 2010, if you bought a new vehicle (or other large asset) you can no longer deduct the state and local sales taxes paid on that purchase, unless you itemize your deductions and make the election to deduct sales taxes instead of deducting state income taxes.
Alternative Minimum Tax Exemption Amounts – Paying the Alternative Minimum Tax stinks. Luckily, they were able to sneak in an Alternative Minimum Tax patch and raised the amount that you are exempted for in 2010. For married couples filing jointly it was increased to $72,450, for singles and heads of household is was increased to $47,450, and it was increased to $36,225 for married couples filing separately. This topic is pretty heavy so I will defer to TurboTax for more info on the Alternative Minimum Tax.
Excluding Unemployment Income – In 2010, the first $2,400 in unemployment compensation you receive from your employer is no longer excluded from income taxes. Bad news for those that were fired in 2010.
Estate and Generation Transfer Tax (Inheritance Tax) – The estate tax was repealed for the 2010 tax year. Therefore, if you passed away in 2010, there is no estate (inheritance) tax to be paid by your survivors. George Steinbrenner was one of the most unexpected and notable deaths in 2010. His family saved several million dollars due to the timing of his death. The estate tax returns in 2011 with a deduction of 5 million, and a top rate of 35%.
Federal Gift Tax Rate – The gift tax exists to prevent you from avoiding the estate tax. While the estate tax was repealed for 2010, the gift tax remained in place. However, the rate at which you are to be taxed on those gifts exceeding the exclusions, was lowered to 35%, down from 45% in 2009. This will remain at 35% for 2011.
Energy Efficiency Tax Credits – 2010 was the last good year to experience significant tax credits for energy efficient home improvements. You could get a credit of 30% of cost up to $1,500 for things like insulation, windows, and doors. The upper limits on these credits drop to $500 in 2011.