TIPRA covers some issues, neglects others.

• Author: Constantine, Anthony
• Position: Tax Increase Prevention and Reconciliation Act of 2005

On May 17, 2006, President Bush signed the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA) (P.L. 109-222). The TIPRA started out as a budget reconciliation bill and went through many different variations in the House and Senate before Congress reached an agreement. The act includes roughly $90 billion in tax benefits for Americans and $20 billion in revenue-raisers to help pay for them. Among the $70 billion in net tax benefits are relief from the alterative minimum tax (AMT) and an extension of favorable capital gain tax rates.

AMT

Recent tax reductions--along with a changing economy and inflation--have expanded the AMT's effects to more Americans. Lately, this expansion has caused shifts in tax planning and calls for tax reform. TIPRA Section 301 includes some relief from the AMT for 2006, via a temporary increase in the AMT exemptions, which will be $62,550 for those married filing jointly and $42,500 for single taxpayers (compared to $58,000 and $40,250, respectively, as provided in the Working Families Tax Relief Act of 2004).

TIPRA Section 302 extended the use of certain nonrefundable credits to reduce AMT liability through 2006. Along with the adoption credit, the child tax credit and the low-income saver's credit, it allows offsetting of the AMT with the following nonrefundable credits--the dependent care credit, credit for the elderly and disabled, energy savings credit, education credits and mortgage credit. Prior to the TIPRA, the ability to use these other credits for this purpose expired after 2005. Unfortunately, this bill is merely a band-aid for 2006; these issues will need to be re-addressed for 2007 and subsequent years.

Capital Gains/Dividends

Since 2003, Americans have been enjoying even more favorable capital gain and dividend rates than in the past. The 15% rate (5% for those in the 10% and 15% brackets) was set to expire on Dec. 31, 2008 and revert back to 20% for capital gains and ordinary income tax rates for dividends. TIPRA Section 102 extends the 15% capital gain rate through Dec. 31, 2010 and adjusts the rate for low-income taxpayers. Taxpayers in the 10% or 15% tax brackets will have their capital gains and dividends taxed at zero from 2008-2010. The reduced rates have been very beneficial to the many Americans who have realized gains in their portfolios over recent years. It is believed the extension of such rates Hill continue to spur investment and trading activity, and thereby continue the...