The following information is a brief overview of the tax law changes that are effective
in 1997. Refer to Publication 553, Highlights of 1997 Tax
Changes for detailed information.
1) For 1997, retroactive to May 7, 1997, the maximum capital gains tax has changed to a
maximum of 20 percent, and 10 percent for qualifying sales. The holding period has also
changed for assets qualifying for long term capital gains and loss treatment. The rates
will lower to 18 percent and 8 percent for assets held more than five years in the year
2001. Refer to Topic 409 for additional information.
2) For 1997, retroactive to May 7, 1997, the postponement of gain provision and the
one-time over age 55 exclusion of gain on the sale of your home is replaced with an
exclusion of gain up to $250,000 ($500,000 for joint filers), not to be taken more than
once every two years. Refer to Topics 701, 702,
and 703 for more information.
3) For 1998 Individual Retirement Accounts have been expanded to include new and
different IRA's for education and investment. Persons not covered by a retirement plan,
but married to someone who is, can now make fully deductible contributions to their IRA if
adjusted gross income doesn't exceed $150,000. The adjusted gross income limit for persons
who are active participants in other retirement plans will rise slowly until the year 2007
to $80,000 for those married, $50,000 for singles. Education IRA's are nondeductible
(after tax) but earnings are tax free and distributions are tax free if used for qualified
educational expenses. Roth IRA's are also nondeductible, earnings are tax free, and
distributions are tax free if held in the IRA for five years.
4) Child tax credit is a credit for $400 in 1998 with each child age 17 and under. The
credit increases to $500 in 1999.
5) Hope Scholarship credit up to $1,500 a year, and a Lifetime Learning credit up to
$1,000 per year are allowed for higher education expenses.
6) The minimum exemption amount for individuals for underpayment of estimated tax is
raised from $500 to $1,000.
7) The unified estate and gift tax exemption is gradually increased from 1998 to 2007
from $600,000 to $1 million. The exemption amount in 1998 is $625,000.
8) The standard mileage rate for charitable miles increases to 14 cents in 1998. The
special rate for rural mail carriers has been repealed and replaced with an exclusion to
income equal to the Equipment Maintenance Allowance.
9) The self-employed health insurance deduction will increase to 45% for 1998 and 1999.
For more information on these and other tax law changes, refer to Publication
553, Highlights of 1997 Tax Changes.
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