Taxpayer Relief Act Of 1997

Definition

The term Taxpayer Relief Act of 1997 refers to a law that not only reduced federal income tax rates, but also provided a variety of new tax credits.  The Taxpayer Relief Act of 1997 is credited with providing taxpayers with one of the largest tax reductions in the history of the United States.

Explanation

Passed into law during the Clinton Administration, the primary objective of the Taxpayer Relief Act of 1997 was to stimulate the economy through a series of tax rate cuts as well as the implementation of new tax credits.  Several of the highlights of the new tax code included:

Individuals

  • Capital Gains:  the top marginal income tax rate for long-term capital gains was reduced from 28% to 20%, while the 15% bracket was lowered to 10%.
  • Child Tax Credit: introduced a $400 income tax credit for dependents under the age of 17; subject to income phase out thresholds.
  • Education:  introduced the Lifetime Learning Credit and Hope Scholarship Credit.
  • Estate Taxes:  increased the $600,000 exemption for estates to $1,000,000 by 2006.
  • Gift Tax Exclusion:  the $10,000 gift tax exclusion was allowed to grow over time (indexed to a measure of inflation).
  • Real Estate Exemption:  up to $250,000 in profits derived from the sale of a personal residence were now exempt from taxes ($500,000 for married couples).

Corporations

  • Alternative Minimum Tax (AMT):  businesses averaging less than $7,500,000 in gross receipts were no longer subject to AMT.  The Taxpayer Relief Act of 1997 also modified the depreciation adjustments used when calculating the AMT.

Related Terms

flat tax, progressive tax, excise tax, ad valorem tax, franchise taxregressive tax, marginal tax rate, sales tax, stealth tax, tax code, Tax Reform Act of 1986Omnibus Budget Reconciliation Act of 1993sales and use tax