How the New Tax Bill Affects You

President Bush on Wednesday will sign into law another landmark piece of tax legislation.  Here is a summary of how some of the bill's provisions will affect you:

Extend reduced capital gains and dividend rates

The bill extends for an additional two years the 15 percent rate on long-term capital gains and dividends. For low-income taxpayers, that rate will be 0 percent.

Currently scheduled to expire at the end of 2008, the reduced rates will run through 2010. After 2010, the rates are scheduled to revert to 20 percent for long-term capital gains - 10 percent for those in the lowest tax bracket - and one's top income tax rate for dividends.

Provide greater Alternative Minimum Tax relief

The bill increases for tax year 2006 the Alternative Minimum Tax (AMT) income exemption levels that were in effect for 2005. The new exemption levels will be $42,500 for single filers, up from $40,450, and $62,550 for joint filers, up from $58,000.

In addition, when calculating whether you’re subject to AMT, taxpayers will be allowed to use all nonrefundable personal credits to offset AMT liability. Normally, these credits often end up being disallowed under AMT.

The tax, originally intended for the wealthy, now threatens to catch tens of millions of middle-class taxpayers unless lawmakers continue to increase the AMT income exemption levels, since the original levels were never adjusted for inflation.

Increase Roth IRA Eligibility

In order to keep the final reconciliation package under its $70 billion spending limit, lawmakers needed to add revenue raisers into the bill.  The most controversial is one allowing all taxpayers, not just those with modified adjusted gross income of $100,000 or less, to convert their traditional IRAs to Roth IRAs starting in 2010.