The Taxpayer Relief Act of 1997 was approved in both houses of Congress on July 31, 1997 and President Bill Clinton signed the $91 billion tax cut package on August 5.

Among the gems in this new legislation is a meaningful capital gains tax cut which will allow American taxpayers to unlock equities and end the spiraling cycle of "investing up." And, first-time home buyers will see expanded rules for Individual Retirement Accounts (IRA) and 401(k) plans, allowing penalty-free withdrawals to purchase a home.

Every two years, married sellers of principal residences who file joint federal income tax returns will be allowed a $500,000 exclusion ($250,000 for singles) from capital gains tax and those who must pay will do so at a tax rate of 20 percent compared to the previous 28 percent. Depreciation recapture will be 25 percent for sales or exchanges and after 2000, some properties held for five years or more will qualify for an 18 percent capital gains rate. There's more -- a gradual increase in the estate tax exemption -- from $600,000 to $1 million, and to $1.3 million for qualifying small businesses and family farms. And, all this applies to sales or exchanges occurring after May 6, 1997.

For those operating a home business, home office deduction rules are clarified and an increase to 100 percent deductibility of health insurance premiums for the self-employed is promised.

"Baby-boomers can now consider several new options," says Daryl Jesperson, president of RE/MAX International. "Because of growing families and the old capital gains tax law, they have been trading up for years. Many find themselves at or near the empty-nester (no children at home) stage - in a four or five bedroom home with a huge equity. For some people, their home has been their major investment and this new law will let them literally unlock that equity. They may help their children buy a first home, purchase that long dreamed-of vacation home or make other investments for retirement."

However, Jesperson and others in the real estate industry do not believe the new law will create a glut nor a shortage of housing.

"People have spent years thinking in terms of reinvesting and trading up, wondering how they would recapture their appreciation and equity," he continued. "Most will not suddenly sell because of this new law, but we now have a new set of rules to look at for the future. The fact that first-time home buyers can utilize their IRA's and 401(k) plans without penalty could create the opportunity many have hoped for to own a home."

Items included in the budget-balancing and tax bills which Congress and President Clinton approved include: overall tax relief; overall spending recommendations; and tax changes for education, child credit, tobacco, capital gains, home sales, individual retirement accounts, estate taxes, self-employed health insurance, and small businesses.

Copyright 1997 RE/MAX International, Inc.

Contact Anne Lakusta at (972) 355-3518, Daniel Drews at (972) 355-3517, Leslie Maddie at (972) 355-3534 or Amy Strong at (972) 355-3569 today to take advantage of the financial benefits of home ownership!

E-mail: annel@rmdfw.com