Tax Relief Act

A number of other provisions were included to provide tax relief to citizens.  One significant change was an exclusion of $250,000 USD in profit ($500,000 USD if married filing jointly) on the sale of a personal residence as long as the taxpayer had lived there for two of the last five years.  Taxpayers with income under certain limits were also given a Child Tax Credit for dependent children under the age of 17.  Estate taxes, often called inheritance taxes, were decreased or eliminated.  The maximum capital gains tax was reduced from 28% to 20%, except for taxpayers in the 15% bracket, who had the maximum capital gains tax reduced to 10%.

Two education credits created by the Tax Relief Act were the Hope Credit and the Lifetime Learning Credit.  The Hope Credit is a non-refundable credit of up to $1500 US Dollars (USD) of the cost of education expenses for students in the first two years of college who are enrolled at least half-time in a degree program.  The credit can be taken by the taxpayer, a spouse or a dependent, and can be used for multiple students providing they qualify.

A great CPA can put your tax records in order so you can get a true accounting of the "historical" road just travelled, but they probably shouldn't take you into battle with the IRS because they don't spend all their time negotiating tax resolutions the way specialized tax professionals do.

Saving for retirement also became easier under the Tax Relief Act.  The new Roth IRA allowed people to make after-tax contributions into a retirement account with the promise that none of the earnings would be taxed if the funds were not withdrawn before the taxpayer reached retirement age.  Taxpayers who were enrolled in employer-funded retirement plans were ineligible to invest in a traditional, tax-deductible IRA if their income was under a certain amount.  The act increased that income ceiling, allowing more taxpayers to participate.  Taxpayers under retirement age were also allowed to withdraw up to $10,000 USD without penalty to put toward the purchase of a home.

A student does not have to attend college half-time or pursue a degree program to qualify for the Lifetime Learning Credit.  As long as he attends a qualified school, he can claim a credit based in a percentage of his tuition and related fees.  This credit began with a maximum of $1000 USD with scheduled increases to $2000.  This credit can also be claimed for more than one student, but unlike the Hope Credit, the limits are per family, and not per student.