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IRS Announces New Income Tax Rates for 2021

On October 26, 2020, the Internal Revenue Service (IRS) released tax inflation adjustments for the 2021 tax year. This adjustment covers a number of real estate-related tax provisions, including:

  • ordinary income rates
  • capital gains rates
  • alternative minimum tax (AMT) thresholds.

The IRS adjusts these rates annually to keep up with inflation.

Ordinary income tax rates for 2021 are as follows:

  • 37% for individual single taxpayers with incomes greater than $523,600 ($628,300 for married couples filing jointly)
  • 35%, for incomes over $209,425 ($418,850 for married couples filing jointly)
  • 32% for incomes over $164,925 ($329,850 for married couples filing jointly)
  • 24% for incomes over $86,375 ($172,750 for married couples filing jointly)
  • 22% for incomes over $40,525 ($81,050 for married couples filing jointly)
  • 12% for incomes over $9,950 ($19,900 for married couples filing jointly)
  • 10% for incomes of $9,950 or less ($19,900 for married couples filing jointly).

The AMT exemption amount has increased from $72,900 to $73,600 ($113,400 to $114,600 for married couples filing jointly). The phaseout threshold beyond which taxpayers are no longer eligible for the AMT exemption has increased to $523,600 ($1,047,200 for married couples filing jointly).

The AMT is a supplemental income tax targeting high-income earners who have a high ratio of standard income tax (SIT) deductions.

Long-term capital gains rates have also increased for the tax year 2021. Unlike ordinary income rates, capital gains are taxed at a single rate of 0%, 15% or 20%, depending on the individual’s total taxable income.

Long-term capital gains rates for tax year 2021 for individuals are as follows:

  • $40,400 and below at 0%
  • Between $40,400 and 445,850 at 15%
  • Above 445,850 at 20%

For married couples filing jointly:

  • $80,800 and below at 0%
  • Between $80,800 and $501,600 at 15%
  • Above $501,600 at 20%

Additionally, the standard deduction has increased to $12,500 ($25,100 for married couples filing jointly).

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