What's New on Your 1040
BOSTON — For parents: A tax credit of $400 per child in 1998 and $500 thereafter. It applies for children under age 17 (when the tax year starts) and phases out when mom and dad's adjusted gross income hits $110,000, or $75,000 for a single parent.
Adoption expenses also get a tax credit - up to $5,000 per child. This begins to be phased out for families with adjusted gross incomes above $75,000.
For homeowners: No tax on profits up to $500,000 ($250,000 for individuals) from selling a home. This benefit is available every two years and replaces the one-time exclusion for people over 55 and the rollover of home profits into another home purchase.
For heirs: More assets can bypass the estate tax, rising from $625,000 in 1998 to $1 million in 2006.
For investors: Lower taxes on investment profits. The top tax rate on long-term capital gains fell from 28 to 20 percent, starting May 7, 1997. But as of July 29, you must own the investment for 18 months, not a year, to qualify as "long-term." Short-term gains get taxed at ordinary income rates. Midterm gains, on assets held 12 to 18 months, have a top rate of 28 percent, as do long-term collectibles.
For savers: Congress created new options for tax-sheltered individual retirement accounts. Two highlights: The new Roth IRA taxes your money on the way into the account but earnings and withdrawals are tax-free. And money can be pulled penalty-free from any IRA to pay for college or a first home.