WHAT IS Taxpayer Relief Act Of 1997
BREAKING DOWN Taxpayer Relief Act Of 1997
The Taxpayer Relief Act of 1997 is a piece of legislation that introduced the Child Tax Credit and raised the unified credit limit and the tax exclusion from the sale of a personal residence. This legislation also provided tax relief for education savings and retirement accounts. Its benefits applied to taxpayers at all levels of income.
President Clinton signed the Taxpayer Relief Act of 1997 on August 5, 1997. In addition to the aforementioned tax breaks, this act also created a $1.3 million exclusion for farms and small businesses. The new tax policy was widely applauded by the American public, and has since provided billions of dollars in tax relief for both individual and business-owning taxpayers.
Details of the Taxpayer Relief Act of 1997
The Taxpayer Relief Act of 1997 was the first law solely devoted to tax cuts that Congress enacted using the fast-track budget reconciliation process.
With this legislation, the Child Tax Credit began in 1998 at $400 per child under 17 years of age, and increased to $500 in 1999. The Child Tax Credit was eventually phased out for higher income families. The top marginal long term capital gains rate fell from 28 percent to 20 percent, and the 15 percent bracket lowered to 10 percent. As a result of this tax policy, Roth Individual Retirement Accounts (IRAs) were established, therefore permanently exempting these retirement accounts from capital gains taxes.
The Taxpayer Relief Act of 1997 also permanently exempted from taxation capital gains on the sale of a personal residence amounting up to $500,000 for married couples filing jointly, and $250,000 for single individuals. This exemption only applies to residences taxpayers have occupied for at least two of the last five years. Taxpayers can only claim this exemption once every two years.
The $600,000 estate tax exemption under the Taxpayer Relief Act of 1997 was set to increase gradually to $1 million by the year 2006. But, as inherited assets are automatically revalued to their current or "stepped-up" basis, any capital gains are permanently exempted from taxation.
Under this act, family farms and small businesses could qualify for an exemption of $1.3 million. The Taxpayer Relief Act of 1997 also set the annual gift tax exclusion at $10,000, however starting in 1999, this figure has been adjusted annually for inflation.