Taxpayer Relief Act of 1997

What Is the Taxpayer Relief Act of 1997?

The Taxpayer Relief Act of 1997 was one of the biggest tax-decrease acts in U.S. history. The legislation decreased tax rates and presented some new tax credits that stay in place today. Presently recognizable concepts, for example, the child tax credit and the Roth IRA were presented with this act.

The measure completely transformed the Internal Revenue Code, making in excess of 800 changes. At the hour of its passage, the act was estimated to comprise a $95.3 billion tax cut over the resulting five years.

Understanding the Taxpayer Relief Act of 1997

The benefits of the Taxpayer Relief Act were directed primarily to center and low-income taxpayers. A large number of its provisions, for example, the child tax credit and the education credit, were phased out at higher income levels.

President Bill Clinton marked the Taxpayer Relief Act of 1997 on Aug. 5, 1997. The new tax policy has since given billions of dollars in tax relief for individuals and small business owners.

A few Benefits of the Taxpayer Relief Act of 1997

By and large, the act offered substantial tax relief for parents, college students, investors, homeowners, small business individuals, and retired folks.

A number of now-recognizable tax benefits were presented with the 1997 act, including the child tax credit and the Roth retirement account option.

Parents of minor children profited from the new child tax credit presented by the act. The credit was presented in 1998 at $400 per child under age 17 and increased to $500 in 1999. Starting around 2020, it was $2,000.

The American Rescue Plan brought up the child tax credit in 2021 from $2,000 to $3,000 per child for children between the ages of 6 and 17, and $3,600 per child for children younger than six. The credit is accessible for married couples filing jointly who earn up to $150,000, or $112,500 for a family with a single parent (or Head of Household).

The act raised certain taxes, including the federal cigarette tax and fees charged for certain services.

Education Credits Introduced

The act laid out the legal basis for education savings accounts, which allow parents to put something aside for future college expenses with tax-free gains and withdrawals for educational purposes.

Furthermore, the act made the hope tax credit and the lifetime learning credit for college students. It likewise settled a deduction for the first $2,500 of student loan interest paid every year for federal loans.

Capital Gains Tax Lowered

The act fundamentally diminished capital gains taxes for investors in more ways than one. The top marginal long-term capital gains rate tumbled from 28% to 20%, and the 15% bracket was lowered to 10%. It likewise extended the time span that a taxpayer would have to hold an asset to meet all requirements for the lower long-term capital gains tax rates from 12 to 18 months.

(This has changed. For 2021 and 2022, the long-term capital gains tax rate is 0%, 15%, or 20% relying upon the income bracket of the taxpayer. Short-term capital gains are currently taxed at the filer's ordinary income tax level. Short-term is again defined as under a year.)

Covers on certain benefits decreased or wiped out their utilization by high-earning taxpayers.

The 1997 act excluded from taxation any capital gains on the sale of a personal residence up to $500,000 for married couples filing jointly and $250,000 for single individuals. This exemption applies just to residences taxpayers have occupied for somewhere around two of the last five years. It tends to be guaranteed just once like clockwork.

The Roth IRA and that's just the beginning

Other big changes presented in the 1997 act:

• The Roth individual retirement account was made. This variation on the IRA allows taxpayers to pay into a retirement account utilizing after-tax dollars however pull out the money after retirement with no extra taxes owed on the contributions or the profits earned on them.
• The estate tax exemption was raised to $600,000 and was set to increase to $1 million by 2006. Starting around 2021, that exemption is $11.7 million for individuals, rising to $12.06 in 2022.
• The annual gift tax exclusion of $10,000 was required to be adjusted annually for inflation. It was $15,000 in 2021, rising to $16,000 in 2022.

Features

• A large portion of the tax breaks in the 1997 act went to center and low-income taxpayers.
• Capital gains taxes were diminished.
• The Roth IRA, the child tax credit, and education savings accounts were undeniably presented.