The following information is a brief overview of the tax law changes that are effective in 1998.
Refer to Publication 553,
Highlights of 1998 Tax Changes for detailed information.
1) Effective January 1, 1998 the new law eliminated the 18-month holding period that was
required to be met in order to take advantage of the lowest capital gains tax rates.
The maximum capital gains rates for most capital assets held more than 12 months are 10 percent,
20 percent, and/or 25 percent. Some capital assets such as collectibles, are still subject to
a maximum capital gains rate of 28-percent. Beginning in the year 2001, the 10 percent rate
will be lowered to 8 percent and the 20 percent rate will be lowered to 18 percent for assets
held more than five years after December 31, 2000. Select
Topic 409 for additional information.
2) For 1998, an individual may be able to exclude up to $250,000 ($500,000 for certain joint filers)
of the gain from the sale or exchange of the home. The exclusion of gain is not to be taken
more than once every two years. Select Topic 701 and
Topic 702, for more information.
3) For 1998, Individual Retirement Accounts have been expanded to include new and different IRAs
for education and investment. Persons not covered by a retirement plan, but married to someone who is,
and file jointly 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 IRAs are nondeductible (after tax), earnings are tax free while held in the
Education IRA, and distributions are tax free if used for qualified educational expenses. See
Publication 970, Tax Benefits for Higher Education
for more information on Education IRAs. Roth IRAs are also nondeductible, earnings are tax free while
held in the Roth IRA, and distributions are tax free if held in the IRA for five years. Select
Topic 451 for more information on IRAs.
4) The Child tax credit is a credit for $400 in 1998 for each qualifying child under age 17.
The credit increases to $500 in 1999. If you have three or more qualifying children and you are
not able to claim the $400 Child Tax Credit, you may be able to claim the additional Child Tax Credit,
on Form 8812, Additional Child Tax Credit. Select Topic 606 for more information.
5) The Hope Scholarship Credit allows taxpayers to claim a maximum credit of up to $1,500 a year,
(100 percent of the first $1,000 qualified tuition and related expenses, plus 50 percent of the next
$1,000 of such expenses) for each eligible student in the taxpayer's family. Expenses can be for you,
your spouse or an eligible dependent for the first two years of post-secondary education at an eligible
educational institution. The student must be enrolled on at least a half time basis for at least one
academic period during the year. The Hope Scholarship Credit applies to expenses beginning January 1, 1998
for academic periods beginning on or after that date. The Lifetime Learning Credit allows taxpayers
to claim a maximum credit of up to $1,000 (20% times $5,000) of expenses incurred for qualified tuition
and fees for all students in the taxpayer's family who are enrolled at an eligible educational institution
eligible students for any college, vocational school, or other institution eligible to participate in student
aid programs administered by the department of education. The credit applies to expenses paid beginning
July 1,1998. Select Topic 605 for more information on Educational Credits.
6) There is no penalty for underpayment of estimated tax where the tax liability shown on the
return less withholding paid, is less than $1,000.
7) The unified estate and gift tax exemption is gradually increased from 1998 to 2007 from $625,000
to $1 million. The exemption amount in 1998 is $625,000.
8) The standard mileage rate for charitable miles is 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 is 45% for 1998 and 1999.
10) For 1998 you may be able to deduct up to $1,000 for qualified student loan interest.
You may only deduct interest that is paid during the first sixty months that interest payments are required.
The qualified education loan must be for you, your spouse or a dependent. For more information on these and
other tax law changes, refer to
Publication 553, Highlights of 1998 Tax Changes.
Forms and publications can be downloaded from this site,
or ordered by calling 1-800-829-3676.
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