There are several changes in the tax law that may affect you. Let us know if you have any questions.

Education - Congress will try to streamline tax credits and deductions relating to education expenses. The Hope Credit (up to $1,650), the lifetime learning credit (up to $2,000) and the above the line deduction (up to $4,000) would be replaced with a credit worth up to $3,000 per year, with a $12,000 per student life time cap. The phase out for this credit would also be higher than for the current credits, so more families could avail themselves of it.

“Kiddie” tax reprieve – Congress has allowed families with children born before 1990 until December 31st to sell assets to be taxed at 5% instead of 15%. After that date, the rules on taxing children income over $1,700 at the parents’ rate will apply.
See Our section on Tax and Investment Planning for Your Children.

Out-of-State Municipal Bonds - The Supreme Court will review a Kentucky court decision that it is unconstitutional for that state to tax interest on the bonds from other states while exempting from income tax Kentucky bonds. If you had out-of-state municipal interest taxed on your state income tax returns, you may want to file amendments to protect your ability to get a refund if the Supreme Court upholds this decision.

Investment Property and Use of $250,000 Gain Shelter - The IRS recently clarified the rules for the sale of principal residence that had been a rental property. The tax law allows a taxpayer to exclude up to $250,000.00 of gain ($500,000.00 if married and filing jointly) from the sale or exchange of a principal residence, so long as the taxpayer lived in the property for two out of the last five years. Under the new rules, a replacement property held for investment and then converted into a principal residence will still be eligible for this exclusion, if the two out of the last five years test is met AND the replacement property was owned by the taxpayer for at least five years. This would mean that taxpayers could potentially exclude almost all capital gains tax which would otherwise be due on investment property.