About the Tax Relief Act of 1997

The Tax Payer Relief Act of 1997 was a long awaited break for the middle class. The goal was to balance the budget by 2002. It provided relief in a number of areas through tax breaks.

Home Sales

For couples that filed their income taxes as married filing a joint return, the act allowed them to be exempt from the sales of their primary home for the first $500,000. Those who filed single were allowed exemption on the first $250,000.

Estate Taxes

The act further exempted inheritance taxes up to $1,000,000. Exemptions for farmers and small business owners changed to $1,300,000.

Retirement Savings

The act offered a tax-free IRA option. Although the initial money that is put in the IRA is still taxed the amount that the IRS earns is no longer taxable after 5 years and the IRA owner turning 59 ½. It also allowed a larger sum of money to be put into the account and granted withdrawals with no penalization if you were buying your first home or needed it for educational expenses.

Child Tax and Tuition Credit

Married couples that have combined annual incomes not exceeding $110,000 were allowed a $400 tax credit per child beginning in 1998 and after that it would be $500 per child. $1500 tax credits were made available for the first two years of college and $1000 for every year after that.

Education Savings Account

The act actually created an educational IRA making the earnings tax-free. Parents were allowed to contribute $500 per child but it had to be withdrawn before they turned 30 years of age.