Married persons filing separately: $150,000
The limitation has been made permanent. Each year, the applicable thresholds will be adjusted for inflation.
Itemized deductions that are not subject to the Pease limitation are:
Casualty and theft losses
The Pease limitation is likely to impact charitable giving because the deduction for donations can be impacted. It remains to be seen how much of an effect the limitation will have in 2013 and in the future.
PEP Limitation. For 2013, it is expected that the personal and dependency exemption amount will be $3,900. While there is no cap on the number of exemptions that can be claimed, starting in 2013, there is an overall cap that can reduce or completely eliminate a deduction for exemptions (Code Sec. 151). The personal exemption phase-out (PEP) begins to apply when adjusted gross income exceeds a threshold amount applicable to the taxpayer's filing status. The same threshold amounts for the Pease limitation apply as well to the PEP.
IRA Transfers to Charity
Individuals age 70½ or older can make direct transfers of IRA funds up to $100,000 to public charities without paying tax on these distributions. This break had expired at the end of 2011. The act extends it for 2012 and 2013.
Because of the late enactment, many IRA owners in this age group took their annual required minimum distributions (RMD) in order to avoid the 50 percent penalty even though they may have preferred to transfer the RMDs directly to their favorite charitable organization. The act provides some relief to those who act quickly:
Re-characterize distributions made in January 2013 as having been made on Dec. 31, 2012.
Treat distributions from IRAs made to the owner in December 2012 as a direct transfer as long as the owner transfers the funds to a charity before Feb. 1, 2013. Distributions made before December 2012 (e.g., distributions taken in November 2012) do not qualify for this relief.
The act makes numerous other changes for individuals and businesses. Over time, IRS guidance on these changes will help taxpayers take full advantage of tax-saving opportunities presented by the new law.
Sidney Kess, CPA-attorney, is of counsel at Kostelanetz & Fink, consulting editor to CCH, author and lecturer.