Barring action in Congress, a number of favorable tax provisions will expire at the end of 2012.
Affordable Care Act Provisions: A 3.8 percent tax on net investment income, part of the 2010 Affordable Care Act, will go into effect in 2013 for individuals with adjusted gross incomes above $200,000 and couples with income above $250,000. The Medicare payroll tax for some taxpayers will increase by 0.9 percent.
Capital gains: Long-term capital gains will rise from 15 percent for most taxpayers to 20 percent after 2012.
Depreciation deductions: The 100 percent bonus depreciation deduction for qualified assets in 2011 decreases to 50 percent in 2012, and zero in 2013. The Section 179 depreciation deduction declines to $125,000 in 2012 from $500,000 in 2011, and will return to $25,000 in 2013. The definition of what qualifies for the Section 179 deduction has narrowed after an expansion in 2011.
Dividends: Qualified dividends will no longer be taxed at the capital gains rate in 2013, instead being taxed at the marginal tax rate.
Estate and gift tax provisions: A provision allowing for individuals to gift $5 million of their estate without tax liability – and at a 35 percent rate above that – will expire at the end of 2012. Starting in 2013, the exemption will decrease to a former $1 million exemption, with additional assets taxed at 55 percent.
Top tax rates: A top marginal tax rate of 35 percent on ordinary income is expected to rise to 39.6 percent in 2013.