Tax Law Changes for 1997 & 98

Most everyone has heard that capital gains rates have been reduced for sales of capital assets after May 6, 1997. The holding period has been raised to 18 months, and the long-term rate goes from 28 to 20%. This is tax simplification -- the change added 34 lines to schedule D. More changes are on the way for 2001. Pay attention to your trade dates, and wade through the form to determine capital gains.

There is a major change here. There is no tax owing on the sale of a personal residence (must have been lived in two of last three years as principal residence) on gains of up to $250,000 or $500,000 for married filing joint. The rules go into effect for sales after May 6, 1997, and have a window where you can elect to use new - or old rules. The good thing about this change is that it is not a once in a lifetime election. You could sell your home, buy another, and then not pay tax on any gain in that residence four or five years down the road.

Beginning in 1998 you can qualify for the Hope Scholarship credit of up to $1,500 for tuition paid for first or second year college students. Tuition must have been paid in 1998, and you must claim the student as a dependent to qualify for the credit. It phases out for modified adjusted gross income of $40,000 -$50,000 (single) and $80,000-$100,000 (married filing joint). There is also a lifetime learning credit of up to $1000 for students beyond the first two years. This credit also phases out as your income rises, and is not a dollar for dollar. Finally, you can take one or the other, but not both. Credits are per child - not per household.