Tax Law Changes That May Affect You 



THERESA MURPHY 



The Taxpayer Relief Act of 1997 was signed 

 into law by President Clinton on August 5, 

 1997. It contained 824 amendments, 285 new 

 code sections, and 114 changes, of which 36 were ret- 

 roactive, 69 became effective on January 1, 1998, and 

 five more will become effective after 1998. More than 

 a few taxpayers threw their hands up in frustration 

 and sought professional help, some for the first time 

 since they started paying taxes! You may have been 

 one of them. 



Then, just when most taxpayers were starting to 

 come to terms with the changes from the 1997 legisla- 

 tion, Congress passed the Internal Revenue Service Re- 

 structuring and Reform Act of 1998, which was signed 

 into law on July 22nd of this year. 



In addition to reorganizing the structure and man- 

 agement of the IRS, it too provides for a number of 

 changes. These include accelerated electronic filing, 

 technical corrections to certain tax laws, and the re- 

 peal of the 18-month capital gains holding period. 



Summarized below are some of the changes that are 

 probably most relevant to ordinary taxpayers, like you 

 and me. There are many more changes, particularly to 

 the Roth IRA rules and to capital gains exclusions, 

 but a discussion of these is beyond the scope of this 

 article. 



justed gross incomes over $110,000 for joint returns, 

 $75,000 for single filers, and $55,000 for married in- 

 dividuals filing a separate return. 



Education Tax Incentives 



HOPE Tax Credit. 



The HOPE Credit may only be claimed if: 



1. the student is in one of the first two years of 

 post-secondary education; 



2. the program leads to a degree or certificate; 



3. the student is taking at least 50% of a normal 

 full-time work load; and 



4. the student is free of any felony drug convic- 

 tions. The maximum credit per student is $1,500 

 and is based on educational expenses paid after 

 December 31, 1997. 



Lifetime Learning Credit. 



For educational expenses paid after June 30, 1998, 

 this credit is not based upon the student's workload 

 and it is not limited to courses taken during the first 

 two years of post-secondary education. The maximum 

 credit is $1,000 for each tax year no matter how 

 many students in the family qualify for this credit. 



Exclusion of Gain on Principal Residence 



Individuals can exclude from taxable income up to 

 $500,000 in gains ($250,000 for single taxpayers) 

 from the sale of property used as a principal residence. 

 To qualify for the exclusion, the taxpayer must have 

 used the property as a principal residence for at least 

 two years during the five-year period ending on the 

 date of the sale. The exclusion can be used no more 

 than once every two years and is effective for sales oc- 

 curring after May 6, 1997. 



Child Tax Credit 



Beginning in 1998, a credit of $400 per child ($500 

 after 1998) will be available for each qualifying child 

 under age 17. The credit begins to phase out on ad- 



Other Tax Breaks For Education 



Penalty-Free IRA Withdrawals. 



The 10% additional tax on early withdrawals will not 

 apply to withdrawals starting in 1998 to pay for the 

 qualified higher education expenses of the taxpayer, 

 spouse, or any child or grandchild of the taxpayer or 

 the taxpayer's spouse for education furnished in aca- 

 demic periods beginning in 1998. 



Education IRAs. 



Beginning in 1998, individuals may open an education 

 retirement account to save for qualified higher educa- 

 tion expenses of a designated beneficiary. This exclu- 

 sion is not available for any year in which the HOPE 

 credit or the Lifetime Learning credit is claimed. 



The Plantsman 



