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TAX LAW CHANGES EFFECTIVE IN 1997

Helping Tax Payers Reduce Their Tax Burden

October 13, 1997

On August 5, 1997 President Clinton signed into law the “Taxpayer Relief Act of 1997." Unlike previous tax law changes of recent years, the 1997 Taxpayer Relief Act will hold important tax savings for many different levels of taxpayers, including dramatic changes for the ‘average’ taxpayer. It may be very important for you to reassess your current tax and financial plans in order to take maximum advantage of the best of these changes, and to avoid the negative implications. We are unable to review the entirety of the tax law changes here, but please feel free to contact us at 312.563.6463 or by filling out our contact form.

Lower Taxes on Capital Gains

Capital gains tax rates have been reduced from 28% to 20% for long term gains, and have been reduced to 10% if you are in the 15% tax bracket. To qualify for this long term rate, your asset(s) relating to the gain must have been held for at least 18 months. One exception is if the sale(s) took place on or after May 7, 1997 and before July 29, 1997, and if you held the asset for at least one year, your gain would be taxed at the 20% rate.

If the sale of your asset(s) leading to the gain was after 7/28/97, and held over 12 months, your maximum capital gains tax rate would be 28%.

Sale of a Principal Residence

If your principal residence was sold after May 6, 1997 (unless the sale was under a binding contract before August 5, 1997), if you meet all qualifying ownership and use conditions, and if you are married/joint filers with the same principal residence, the first $500,000 of current or deferred profit on your home sale ($250,000 for single filers) is now tax free.

This exclusion will generally be allowed once every two years if all the qualifying ownership and use conditions are met. It replaces both the rollover and over-55 exclusions previously affecting home sales. The home must have been the principal residence of the taxpayer for 2 of the last 5 years. Accelerated depreciation claimed after May 6, 1997 will be taxed now going forward, despite this new provision (i.e. rental or home office use).

Repeal of Excise Tax on Excess Retirement Plan Distributions

Taxpayers will no longer be penalized for taking large pay-outs from IRA’s, qualified plans, tax-sheltered annuities, or for leaving large retirement plan accumulations to heirs. The 15% excise tax on excess retirement plan distributions is permanently repealed (effective for distributions received after 1996), as is the 15% excise penalty on excess accumulations in retirement plans (effective for decedents dying after 1996).


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Pape Financial Services, Inc. ~ 827 N. Milwaukee Ave ~Chicago~IL~60622~USA
Tel: 312.563.6463~Fax: 312.563.6467~ e-mail us ~http://www.papefinancial.com

The content of this page is considered general information and should not be considered tax or accounting advice. The tax laws are constantly changing. Consult one of our CPA's before you act on any information contained on this web page.

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Last modified: August 12, 1998