Omnibus budget reconciliation act of 1993 - Glossary Real Estate Tags

Omnibus budget reconciliation act of 1993

Act designed to help reduce the federal deficit by approximately $496 bil­lion over five years through a restructuring of the tax code. The fol­lowing include some of the major provisions that will have an impact, on financial planning:

  1. Establishment of a new top tax rate on ordinary income (wages, interest, dividends, etc.) of 36% on taxable income alone: Applicable Filing Status ThresholdMarried individuals filing joint returns $ 140,000Heads of households 127,500Unmarried individuals 115,000Married individuals filing separate returns 70,000Estates and trusts 5,500
  2. Establishment of a new 10% surtax on individuals with taxable income in excess of $250,000; except for married individualsfiling separately the surtax applies to taxable income over $125,000.
  3. Establishment of a new 39.6% marginal tax rate, which includes the above 10% surtax, to be applied to taxable income in excess ofthe $250,000. Long-term capital gains are not subject to the higher rates, and will not be taxed at a rate higher than 28%. Since thepassage of this Act, the maximum long-term capital gains tax has been reduced to 20%.
  4. Establishment of a new two-tiered progressive Alternative Minimum Tax rate schedule for noncorporate taxpayers as follows: married individuals filing a joint return would pay a 26% rate on Alternative Minimum Taxable Income up to $175,000, and a 28% rate on Alternative Minimum Taxable Income in excess of $175,000; married individuals filing separate returns would pay a 28% rate on Alternative Minimum Taxable Income in excess of $87,500.
  5. Exemptions under the Alternative Minimum Tax increased as follows: to $45,000 from $40,000 for married individuals filing jointreturns; to $22,500 from $20,000 for married individuals filing separate returns, as well as estates and trusts; to $33,750 from $30,000 for single individuals.
  6. Elimination of the dollar limitation cap on self-employment income and wages subject to medicare hospital insurance.
  7. Establishment of new maximum estate and gift tax rates as follows: for transfers between $2.5 million and $3 million, a 53% rateis applied; for transfers in excess of $3 million, a 55% rate is applied.
  8. Deductible of allowable meals and entertainment to the extent of 50% of costs.
  9. No deduction for club dues permitted; however, particular business expenses such as meals and entertainment incurred at a clubare deductible to the extent of 50% of costs.
  10. For the publicly held corporation, no deduction permitted for compensation paid over $1 million for any one of its highest fiveexecutives.
  11. For qualified retirement plan contributions, a reduced compensation ceiling from $235,840 in 1993 to $150,000 beginning in1994. The $150,000 ceiling is to be indexed according to the inflation index each year beginning in 1996.
  12. For Social Security recipients, up to 85% of Social Security benefits taxable for married retirees with income in excess of $44,000and for single retirees income in excess of $34,000.
  13. For self-employed individuals, a deduction as a business expense up to 25% of the premiums paid for health insurance coverage forthat individual, spouse, and dependents.
  14. Repeal of the luxury excise tax of 10% on boats, aircraft, jewelry, and furs. The luxury excise tax of 10% indexed for inflationremains for automobiles in excess of $30,000.
  15. Maximum corporate tax rate increased to 35% on taxable income above $10 million. For the personal service corporation, the flatrate is increased to 35%.

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