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Deductions and Phaseouts Change for 2012

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Because of inflation, personal exemptions and standard deductions will rise, and tax brackets will widen, for tax year 2012.

By law, the dollar amounts for a variety of tax provisions, affecting virtually every taxpayer, must be revised each year to keep pace with inflation. New dollar amounts affecting 2012 returns, filed by most taxpayers in early 2013, include the following:

tax and dollars
  • The value of each personal and dependent exemption, available to most taxpayers, is $3,800, up $100 from 2011.
  • The new standard deduction is $11,900 for married couples filing a joint return, up $300; $5,950 for singles and married individuals filing separately, up $150; and $8,700 for heads of household, up $200. Nearly two out of three taxpayers take the standard deduction, rather than itemizing deductions such as mortgage interest, charitable contributions and state and local taxes.
  • Tax-bracket thresholds increase for each filing status. For a married couple filing a joint return, for example, the taxable-income threshold separating the 15-percent bracket from the 25-percent bracket is $70,700, up from $69,000 in 2011.

Deductions and related phaseouts

  • The foreign earned income deduction rises to $95,100, an increase of $2,200 from the maximum deduction for tax year 2011.
  • The modified adjusted gross income threshold at which the lifetime learning credit begins to phase out is $104,000 for joint filers, up from $102,000, and $52,000 for singles and heads of household, up from $51,000.
  • For 2012, annual deductible amounts for medical savings accounts increased from the tax year 2011 amounts as shown in the table below.
  • The $2,500 maximum deduction for interest paid on student loans begins to phase out for married taxpayers filing joint returns at $125,000 and phases out completely at $155,000, an increase of $5,000 from the phaseout limits for tax year 2011. For single taxpayers, the phaseout ranges remain at the 2011 levels.

Medical Savings Accounts

Self-only coverage

Family coverage

Minimum annual deductible

$2,100

$4,200

Maximum annual deductible

$3,150

$6,300

Maximum annual
out-of-pocket expenses

$4,200

$7,650

Estate and gift provisions

For an estate of any person dying during calendar year 2012, the basic exclusion amount from estate taxes is $5.12 million, up from $5 million for calendar year 2011. If the executor chooses to use the special-use valuation method for qualified real property, the aggregate decrease in the value of the property resulting from the choice cannot exceed $1.04 million, up from $1.02 million for 2011.

The annual exclusion for gifts remains at $13,000.

Other items

The monthly limit on the value of the transportation benefits exclusion for qualified parking provided by an employer to its employees for 2012 rises to $240, up $10 from the limit in 2011. However, the temporary increase in the monthly limit on the value of the exclusion for transportation in a commuter highway vehicle and for a transit pass provided by an employer to its employees expires and reverts to $125 for 2012.

Several tax benefits are unchanged in 2012. For example, the additional standard deduction for blind people and senior citizens remains $1,150 for married individuals and $1,450 for singles and heads of household.


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