Unless Congress acts, many tax cuts and tax rate reductions created by the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) and the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA) will automatically disappear ("sunset") after December 31, 2010. Some of the most notable changes resulting from the sunset are as follows:

  • Capital Gains Rates: Since 2003, JGTRRA provided for a 15% maximum rate of tax applicable to individuals on adjusted net capital gains (for both AMT and regular tax purposes). For tax years beginning after December 31, 2010, the maximum rate of tax applicable to individuals on adjusted net capital gains will revert to 20% (except it will be 18% for gains on assets held over five years).
  • Dividends: The maximum tax rate for "qualified dividends" received by individuals is 15% for the 2010 tax year. For tax years beginning after December 31, 2010, the tax rates applicable to qualified dividends will be the applicable ordinary income tax rates (i.e., as high as 39.6%).
  • Individual Tax Rates: As a result of EGTRRA, the following individual marginal tax rates were created:

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However, for tax years beginning after December 31, 2010, the following individual marginal tax rates shall apply:

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  • Itemized Deduction Phaseout: Beginning in 2006, EGTRRA gradually repealed the limitation on itemized deductions, with such limitation entirely repealed for 2010. However, the limitation on itemized deductions will be reinstated in full for tax years beginning after December 31, 2010.
  • Accumulated Earnings Tax and Personal Holding Company Tax: The tax on accumulated earnings and undistributed personal holding company income (both of which are currently taxed at 15%) will be taxed at the highest tax rate imposed on dividends distributed to individuals (39.6%) for tax years beginning after December 31, 2010.
  • Estate Taxes: Beginning on January 1, 2011, the estate tax is reinstated with a top rate of 55%.
  • Generation-Skipping Transfer (GST) Tax: Beginning on January 1, 2011, the GST tax is reinstated, with a top rate of 55%, and the GST exemption amount is set at $1 million per index for inflation.
  • Gift Tax: Beginning on January 1, 2011, the highest gift tax rate shall be increased to 55%.