Tax Law Changes Effective for the 1999 Tax Year
A number of changes in the tax law take effect for the 1999 tax year. There are major changes in the areas of personal income taxes, business taxes, and estate and gift taxes. All of the new rules are effective on January 1, 1999, except as otherwise noted.
Personal Income Taxes
Increased child tax credit. Eligible individuals may claim a tax credit of $500 (up from $400 last year) for each qualifying child under the age of 17 (one for whom you can claim a dependency exemption and who is your child or other direct descendant or your eligible foster child). The credit begins to phase out when adjusted gross income as specially modified exceeds $110,000 for joint filers, or $75,000 for single filers and heads of households, and $55,000 for married filing separately.
Boosted deduction for education loan interest. You can deduct up to $1,500 of interest paid on an education loan (was $1,000 last year), but the deduction phases out over $40,000 to $55,000 of adjusted gross income as specially modified ($60,000 and $75,000 on joint returns).
More favorable IRA deduction phaseout rules. Deductible IRA contributions are phased out for active participants in an employer-sponsored retirement plan if they have higher levels of income. For 1999, the IRA deduction phases over $31,000 to $41,000 of adjusted gross income as specially modified for single taxpayers, and over $51,000 to $61,000 for joint filers. (For 1998, the phaseout ranges were $30,000 to $40,000 for singles and $50,000 to $60,000 for joint filers.)
Tax Changes for Business
Home-office deduction restored for many. Home-office deductions can be claimed if a room or area in the home is used regularly and exclusively as a principal place of business or a place to meet or deal with customers or clients in the ordinary course of business. An employee's home-office use must be for the convenience of the employer. A 1993 Supreme Court decision barred taxpayers from claiming their home office was a principal place of business if they performed their administrative or management functions in the home, but provided goods or services outside of the home. Effective for tax years beginning after 1998, however, taxpayers can claim home office deductions under the principal place of business test if they use a portion of their home for the administrative or management activities of their business, but only if there is no other fixed location where they conduct substantial administrative or management activities. The liberalized rule benefits many different types of businesspeople and professionals, including doctors who practice outside of the home but do their paperwork from a home office, performing artists such as actors who manage their careers from a home office, consultants who provide most of their services outside of the home, retailers who do their paperwork from a home office, and outside salespeople and sales representatives who use their home offices as a base of operations and a place to do their paperwork.
Boosted self-employeds' health insurance deduction. A self-employed person may deduct as a business expense 60% of the amount paid for medical insurance on himself, his spouse, and his dependents (was 45% for 1998). The deduction isn't available to an individual who's eligible to participate in any subsidized health plan maintained by any employer of the individual or by any employer of the individual's spouse.
Higher expensing limit. The maximum amount of equipment purchases that can be expensed (currently deducted instead of being depreciated over a period of years) is $19,000 (up from $18,500 for 1998).
Lower business mileage rate. On April 1, 1999, the simplified deduction for business auto use will drop from 32.5¢ to 31¢ per business mile traveled.
Estate and Gift Tax Changes
The first $650,000 (up from $625,000 in 1998) of transfers are exempt from estate and gift taxes through a larger "unified credit."
An executor may elect to exclude from the gross estate up to 40% of the value of land subject to a qualified conservation easement meeting certain requirements and subject to a dollar cap. This dollar cap is $200,000 for 1999 (up from $100,000 for 1998).
If certain conditions are met, an executor may elect to value qualified real property used for farming purposes or in a trade or business on the basis of the property's value for its actual use, rather than on its highest and best use. The total decrease in the value of all real property under this election may not exceed $760,000 for 1999 (up from $750,000 for 1998). §
