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The Tax Bill: What It Means To You
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The Tax Bill: What It Means To You
| Tax Break | What It Does | Limits And Conditions |
| IRAs | Contributions are still limited to $2,000 a year, but the new law will allow penalty-free withdrawals for college tuition and first-time home purchases. Nonworking spouses of individuals with pension plans can now participate, and new Roth IRAs offer tax-free earnings on nondeductible contributions. | Tax-deductible contributions start phasing out for couples earning $50,000 and singles earning $30,000. The Roth IRA phase-out begins at $150,000 for couples, $95,000 for singles. |
| Child Tax Credits |
Parents get $400 for each child 16 and under in 1998, rising to $500 a child thereafter. The benefit is available to low-income families even if they pay no federal income tax. | Phase-out begins for couples with income of as much as $110,000, singles with income of as much as $75,000. |
| Capital Gains |
When they sell their primary home, couples pay no tax on the first $500,000 in profit ($250,000 for singles). The top tax rate for capital gains drops from 28% to 20%. For those in the lowest bracket, it falls from 15% to 10%. | Assets must be held 18 months or longer for the new lower rates to apply. |
| Student Benefits |
Parents can deposit $500 annually into an education IRA for each child 17 and younger. Students (or their parents) also get a $1,500 Hope credit against expenses for their first two years in college and as much as a $1,000 credit for their third and fourth years. As much as $2,500 in annual interest on student-loan payments will be tax deductible starting in 2001. | Benefits phase out for the IRA at incomes of $150,000 for couples, $95,000 for singles. Couples earning $80,000 (singles $40,000) begin to lose the Hope credit. Interest deductions trail off at $60,000 and $40,000. |
| Estate Taxes |
Exemption from taxes on an estate has been raised from $600,000 to $1 million. Family-owned businesses have a new exemption of as much as $1.3 million. | The increase in the estate exemption will occur in gradual increments during the next eight years. |