Real Estate
New Tax Law May Benefit You
By ColoradoHomeLoans.com

If you look in the right places, you may find breaks in the new tax law passed by Congress last year. There are breaks for students, parents, investors, retirees and those who are selling their home. Here's a summary of how the new tax law may benefit you:

A HOME: Up to $250,000 of current and deferred profit is free of tax for single taxpayers and up to $500,000 for joint filers. Prior to this law, a home seller had to buy another home of at least equal value within two years. (You still cannot deduct for a loss).

GETTING AN EDUCATION: Beginning in January, 1998, a tax credit of $1,500 per year will help students pay for the first two years of tuition/fees whether attending college or vocational school. Starting in July, 1998, thirdyear, fourth-year and graduate students can get a yearly tax credit of up to $1,000 (also applies to those who are returning to school for improving their Job skills).

These credits begin to drop away when adjusted gross income (AGI) exceeds $40,000 for a single flier and $80,000 AGI for Joint filers.

Parents can save $500 per year for each child under 18 in a new IRAtype savings account to help pay for their child's future education. Although the deposits won't be tax deductible, the earnings will build up tax-free with no tax on withdrawals used for education. The full break is limited to Joint filers with income under $150,000 and single filers with income below $95,000.

REPAYING EDUCATION LOANS: If you are repaying your own loan or a dependent's, you can deduct up to $1,000 of interest for 1998. This deduction is limited to the first 60 months of the repayment schedule and the $1,000 cap increases $500 a year until reaching $2,500 in 2001. For those who do not itemize deductions, this break is in addition to the standard deduction.

RAISING A FAMILY: For most families with kids there is a $400 tax credit per child for 1998 and this increases to $500 per child for 1999. Dependents must be 16 years or younger. The credit drops for adjusted gross incomes over $110,000 for joint filers and $75,000 for single filers.

BUILDING AN ESTATE: Your estate will begin to be taxed at a higher value under the new law. Taxing will begin at $625,000 (previously $600,000) and will gradually increase to $1,000,000 by 2006. Family-owned farms and businesses will escape taxes on $1,300,000.

INVESTING: There's now a lower tax on profit from selling stock and other investments that are held long term. If you hold assets for more than 18 months, the capital gains tax rate is now 10% in the bottom bracket and 20% in higher brackets. (There are assets on which the capital gains tax of 28% still applies).

PLANNING FOR RETIREMENT., Whether covered by a 401 (K) or other retirement plan at work it is easier to make tax-deductible IRA deposits. Under the old law, taxpayers whose adjusted gross income exceeded $40,000 on a Joint return ($25,000 on a single return) could not fully deduct their IRA deposits. Under the new law, for joint filers, the income cap is $50,000 and for single filers, the income cap is $30,000. Over the next several years, these caps will climb higher (eventually to $80,000 for joint filers and $50,000 for single filers.

Where both spouses work but only one has a retirement plan, the new tax law will not penalize the spouse without an employer-sponsored plan as long as joint income is under $150,000.

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