Publications
10.14.11
District of Columbia Mayor Gray recently signed the Fiscal Year 2012 Budget Support Act of 2011 and the Revised Fiscal Year 2012 Budget Support Technical Clarification Emergency Act of 2011. These two pieces of legislation contain several provisions (summarized below) that impact DC residents which we want to bring to your attention.
Interest earned on municipal bonds is now taxable in DC
For individuals, estates and trusts, interest on obligations of a state, territory of the United States or any political subdivision (excluding DC) acquired on or after January 1, 2012 will be included in the computation of DC gross income for income tax purposes.
Itemized deductions have limited tax benefit for some taxpayers
DC will limit the income tax benefit to DC residents for certain itemized deductions. If an individual's DC adjusted gross income exceeds certain thresholds ($200,000 for single, married filing joint and $100,000 for married filing separately), the amount of itemized deductions is reduced by 5% of the excess of DC adjusted gross income over the threshold. Itemized deductions for medical expenses, investment interest expense and theft/casualty losses will not be reduced. This provision does not apply to estates or trusts. The effective date is for tax years beginning after December 31, 2010.
New top personal income tax rate
A higher income tax rate will apply to residents whose taxable income is over $350,000. If taxable income is over $350,000, the tax is $28,550 plus 8.95% of the excess above $350,000. The effective date is for tax years beginning after December 31, 2011. This provision expires on January 1, 2016.
Tax penalties
DC will require higher estimated tax payments for DC residents in order to avoid penalties. For tax years beginning after December 31, 2011, underpayment penalties will not be assessed if taxpayers evenly remit either 110% (formerly 100%) of their prior year tax liability assuming the tax return covered a twelve month period or 90% of their current year tax liability. The law does not address whether this change will apply to estates and trusts.
The above items may significantly impact your 2011 and 2012 DC income tax liabilities. Please contact a partner in the Family Tax Advisory Group at 703-893-0600 if you wish to discuss this further.
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