Taxpayer Relief Act

Purpose

• TRA97 intended to help get the federal government's budget in order, while helping out Americans with tax breaks. The law provided many sweeping tax cuts and tax credits. Some of them helped poor and middle-class Americans, such as the child tax credit that gave parents a $400 to $500 tax credit per child. The tax credit was phased out for parents earning high incomes. TRA97 also helped the middle class by increasing the tax-deductible contribution limits to retirement accounts.
  
  

Capital Gains Provisions

• Other tax changes under TRA97 aimed to help rich Americans. Specifically, TRA97 made significant changes to capital gains taxes. Previously, the highest capital gains tax rate was 28 percent. TRA97 lowered it to 20 percent. Also, TRA97 largely eliminated capital gains tax for most homeowners. In the past, homeowners paid capital gains taxes of up to 28 percent of the total profit earned from the sale of their home. TRA97 stipulated that the first $500,000 of profit earned on the sale of a house is tax-free, as long as the owners lived in the residence for at least two years. This change nearly eliminated capital gains taxes on home sales because the vast majority of homes sold make less than $500,000 in profit.
  
  

Education Provisions

• TRA97 included provisions for educational expenses as well. It introduced the HOPE Scholarship tax credit, which gives up to a $1,500 tax credit for college tuition to couples earning less than $100,000 and single filers earning less than $50,000. The HOPE credit is available for the first two years of college. TRA97 also introduced the Lifetime Learning Credit. This tax credit applies to college juniors and seniors from low-income families.
  
  

Effect on Gift-Giving

• Gift taxes and estate taxes decreased under TRA97. The Unified Credit--the amount of money a person can give away upon death or over his lifetime without taxes--had been capped at $600,000, but TRA97 lifted that limit gradually to $1,000,000 by 2006. By increasing the gift cap, TRA97 saved the biggest gift-givers and the owners of the largest estates more than $100,000 in taxes. After 2006, the cap became indexed to inflation.
  
  

State Laws

• While the most notable Taxpayer Relief Act is the federal law from 1997, several states also have laws with the same name. Pennsylvania passed a Taxpayer Relief Act in 2006, which lowers property taxes. According to its law, Pennsylvania planned to use the state's gambling and gaming revenue to make up for the property tax breaks. Georgia passed its Taxpayer Relief Act in April 2010. Georgia's law eliminates retirement income tax and the state property tax.