Changes for 1998
Child Tax Credit
For the 1998 taxable year, taxpayers may be allowed a $400.00 tax credit for each qualifying child. In general, the term "qualified child" means a child, descendant, step child, or eligible foster child under the age of 17 at the end of the tax year. This credit is in addition to the child and dependent care credit, and begins to phase out at higher income levels. If the taxpayer has three or more qualifying children, an additional credit may be available.
Student Loan Interest
Beginning in the 1998 taxable year, taxpayers will be able to deduct interest on qualified student loans from gross income. The debt must be incurred by the taxpayer for higher education expenses. The deduction is limited to the first 60 months of the loan and is limited to $1000.00 in 1998.
Capital Gains and Losses
The 18 month holding period for long term capital assets eligible for lower capital gain rates has now been changed to 12 months.
Sale of Principal Residence
For sales after May 6, 1997, a relief for hardships will be available for taxpayers who do not meet the two year ownership and use guidelines. The maximum exclusion of $250,000($500,000 for married filing joint) will be prorated in cases where the sale was attributed to health or change in place of employment.
Health Insurance
The phase in of 100% deductibility of health insurance premiums by self-employed individuals has been accelerated. An adjustment to gross income will be allowed for the 1998 taxable year in the amount of 45% of health insurance premiums paid for taxpayer, spouse, and dependent. The amount increases to 60% for tax years 1999-2001.
Roth IRA's
Current tax legislation has modified the rules concerning rollovers from traditional IRA's to Roth IRA's. The new rules prohibit taxpayers from taking premature distributions from Roth IRA's while benefiting from the four year spread of income. Qualified distributions, are, however, not included in income or subject to the 10% penalty. A qualified distribution must satisfy a five year holding period and meet one of the following requirements: