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Part 41
Thomas M. Boles, 33, G.C.
La Habra, California

Several new tax provisions and IRAs offer challenges as well as opportunities.


A dear friend dropped in the “store” the other day, and we began talking about the new Taxpayer Relief Act of 1997, the new IRAs, and even the new Exemptions from Estate Taxes that go in effect the first of next January. My friend, Brother Glenn Dwight Woody, 32, is a fine financial consultant, and he often gives me a few things to think about. We agreed that the new “relief act” should really be termed the “complication act.” Since we both think this information is vital to our Brethren in the Craft, I’ll relate herewith a few things we discussed.

There are several new rules for long-term capital gains in securities, real estate, a business, and most other investments. They all may have an effect on your charitable and deferred giving.

Assets must now be held longer than 18 months to be long term for sales after July 18. Before then, it was a 12-month hold. For sales made before May 7, the top rate on long gains remains at 28%. For sales made after May 6 and before July 29, there is a 20% top rate on gains from assets held for more than 12 months. But for sales AFTER July 28, two top rates remain: 20% for assets held more than 18 months; 28% for assets held more than 12 months but not longer than 18 months.

The 28% maximum rate remains on collectibles if held long term, and 25% is the maximum rate on real estate that has been depreciated.

Leasing on selling a residence will be the biggest capital gains break for many taxpayers. Now more gain can be excluded, $500,000 for couples and $25,000 for singles. Only one spouse needs to be the owner, but each must have lived in the residence for two years. The May 6 date applies; sales after that date qualify for the exemptions. There is no age restriction, and the “age 55 rule” has been repealed. Those over 55 can use the new law, even if they excluded $125,000 before. There are some limits: you must have owned and lived in the home at least two of the five years before the sale. Generally, you cannot use the $500,000-$250,000 exclusion more than once in two years. A larger break for capital gains starts in ten years, 18% top rate for assets bought after the year 2000 and held more than five years.

Three new kinds of IRAs have been added to the four now in use: 1) deductible IRA, 2) non-deductible IRA, 3) rollovers of lump sums from company plans, and 4) medical savings accounts. Most attention is being given to the back-loaded IRA, which takes effect next year. It is being called the “Roth IRA,” for a key sponsor, Senator William V. Roth Jr. of Delaware, or the “Super IRA” or “IRA Plus.” This new IRA calls for no tax on payouts made after age 59 1/2 and held more than four years after the year of the first contribution. But there is no deduction for contributions. It is available for couples with Adjusted Gross Incomes (AGI) under $160,000 or $110,000 for singles. Annual contributions are limited to $2000. That amount phases out for AGI over $150,000 and $95,000 respectively. Contributions can continue after age 70 1/2 if you have earned income.

Some current IRAs can be converted to the new back-loaded IRA. The taxable portion of the current IRA will be taxed immediately; if the conversion occurs in 1998, income from the old IRA can be spread evenly over four years, 1998-2001. The right to convert is limited to folks with AGI under $100,000. There will be an Education IRA starting next year, contributions limited to $500 per year, and withdrawals are tax free when used to pay college costs for the beneficiary. Only one such IRA per child is permitted. Contributions are not deductible. Then, there will be a Medicare IRA for those under Medicare. Total contributions to IRAs are limited to $2,000 per year, but the $500 for the Educational IRA and the Medicare IRA in which the government contributes do not count against your $2,000.

The new exemption from estate taxes rises slowly from the current $600,000 to $1 million. It goes to $625,000 in 1998; to $650,000 in 1999; to $675,000 in 2000 and 2001; to $700,000 in 2002 and 2003; to $850,000 in 2004; to $950,000 in 2005, and $1 million thereafter.

Yes, this new “Tax Complication Act of 1997” is really something, and after you have read this column, if you would like to phone or write me (with some of the answers to my questions), I would sure appreciate it. Which leaves my “ad” for this month to read: “Understanding our tax laws is only half the cure.”


Please Note: This information is distributed with the understanding that the author is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expertise is required, the services of a competent professional should be sought. From: A Declaration of Principles jointly adopted by a Committee of the American Bar Association and a Committee of Publishers.


To receive more information on the benefits of giving appreciated assets to the Scottish Rite Foundation, S.J., USA, print this web page, fill out the requested information, and mail to the address below:

For an investment of securities and/or real estate, please run a calculation and send it to me based on an investment of $__________. Assume the cost basis of the asset (what was originally paid, less depreciation) is $__________.

My birth date is _________________; My spouse’s is _________________.

Name ____________________________ Date _______________________

Address _______________________________________________________

City _________________________ State ________ Zip _______________

Send to: Scottish Rite Foundation, c/o Thomas M. Boles, 1761 East Woodcrest Avenue, La Habra, CA 90631-3260


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What is one of the better ways you can benefit yourself and your family and, at the same time, support the Scottish Rite and its Childhood Language Disorders Program? The answer is simple: The Scottish Rite Pooled Income Fund!

The Scottish Rite Pooled Income Fund allows you and, if you wish, your wife and/or other beneficiary(ies) to receive a worry-free lifetime income as well as attractive tax benefits by joining the Fund via a financial gift to The Scottish Rite Foundation, S.J., USA. For more information call, 1-800-486-3331 or fax 202-387-1843.

Grand Commander Kleinknecht will personally respond to your inquiry. If he is not available, please leave your name and number, and the Grand Commander will return your call at his earliest opportunity. Through the Scottish Rite Pooled Income Fund, you can do well for yourself and your family while also doing good for others!