1987: THE TRANSITION WILL BE TAXING FOR SOME

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP89-00066R000400070052-7
• Release Decision: RIFPUB
• Original Classification: K
• Document Page Count: 11
• Document Creation Date: December 22, 2016
• Document Release Date: January 10, 2011
• Sequence Number: 52
• Publication Date: October 20, 1986
• Content Type: OPEN SOURCE

row,
MONDAY, OCTOBER 20, 1986
E$ I-10W AND WHEN THE NEW TAX LAW AFFECTS YOU.
. 7; 1986: Income from private-purpose munic-
al issued after this date is tax-free unless you pay
e alternative minimum tax. In that case, the income is
a Oiled to your other interne when calculating the AMT,
'which keeps people from reducing tax liability to little or
aCr
nothing using legitimate write-offs,
Aug. '16; Tax 1986. .billagreement reached by
,House-Senate conference committee.
- ?1 Interest on home equity loans made after this date
eductible, only on loan balances up to amount of home's
urchase price, plus improvements. Exception: Interest on
for medical or education expenses deductible up to
et value minas other mortgages.
Date bill is signed: (President Reagan expected
o sign this week.): a
Losses from tax shelter investments made after
it date deductible only from shelter income. For shelter
investments before this date, deduction of losses against
:a ordinary income will be phased out over four years; for
it 1987, 65% of shelter losses deductible against non-shelter
income.
19 1987: Most provisions of the law take effect.
1
Lower individual rates will be phased in over the
- next two Years. This year, five individual tax rates apply:,
- 11%, 15%, 28% 35%, 38.5%. ?
Increases in standard deductions (used by taxpay-
ers who don't itemize deductions) will be phased in over the
next two years. For 1987, the standard deduction is $3,760
for joint- filers, $2,540 for single filers and heads of
household, and $1,880 for married people filing separately.
Ii For blind taxpayers or those 65, the 1988 standard
?
deduction applies a year early,- $5,000 on a joint return,
$4,400 for a head of household, $3,000 single and $2,500 for
Married filing separately. Blind or elderly taxpayers also
? get $600 deductions each if married, $750 if single.
Personal exemptions increase Over the next two
Years; For 1987, the exemption is $1,900. A taxpayer who is
eligible to be claimed as a dependent on another's return
a May not take a personal exemption.
Unearned income of a child under 14 is taxed at
Oen rate for amounts that exceed $1,000.
ii Consumer interest IS 65% deductible; consumer
?
interest dednetien will be phased out over four years.
11 Repealed: two-earner deduction, income avera,g-
, es tax deduction and special treatment of long-term
patat gains; now fully taxed up to tap rate of 28%.
II Deductions for contributions to individual retire-
Mont accounts 'restricted for people who are eligible for
iasioa plans at work; depending on income. ,
81 Unreimbursed medical expenses, which were
deductible to the extent they exceeded 5% of adjusted gross
income, now deductible to the extent they exceed 7.5%.
'I Ihareirribursed 'employee business expenses and
Other miscellaneous expenses deductible only to the extent
the total exceeds 2% of adjusted gross income.
. .
'Charitable deductions no longer deductible unless
you itemize your deductions,
a'1988: Two individual tax ram 15%, 28%.
I Standard deduction rises: $5,000 on a joint return,
$4,400- for head of household, $3,000 for a single person,
$2,500 for Married filing separately.
I personal exemptions rise to $1,950,
MI There is a 5% surcharge on taxable income
between $71,900 and $149,250 for joint filers (between
$43,150 and $89,560 for singles) to phase out the effect of
,the 15% bracket, Surcharge continues on taxable income
over $149,250 for married filers and $89,560 for single filers
until benefit of personal exemptions is eliminated. -
,aaI Forty percent of consumer interest is deductible.
ii Forty' percent of most losses on shelters acquired
before enactment deductible from ordinary income.
,- 1,1989: Annual inflation adjustment for tax
rackets and standard deductions begins.
Personal exemption rises to $2,000.
Twenty percent of consumer interest deductible.
Twenty percent of losses from tax shelter invest-
'bents made before tax law enactment can be deducted
from ordinary income.
n. 4 bp Aa.;,,,
vuu: Annual, inflation adjustment for
penal exemptions begins.
11 Ten percent of consumer interest deductible.
TO percent of losses from tax shelters entered
into before enactment deductible from ordinary income.
an. 1, 1991: Deduction for consumer interest ends.
-I Deduction of tax shelter losses from ordinary
, income ends.
_
Compiled by Catherine Yang and William Giese
USA SNAPSHOTS
A'I04al,9tati,sticS that shape your finances
'
Approved For Release 2011/01/10: CIA-RDP89-00066R000400070052-7
The biggest changes . ? to affect our
nances in generations will take place when President
Reagan signs the new tax bill. Inside:
M The experts' bast tips, 2E.
NI Your worksheet to see where you stand, 3E.
M How to make your home pay you, 6E.
11 The end of tax shelters? 8E.
Next Bonus Section . . . Catch up on the latest in high-
tech for your home, Monday, Nov. 3.
1987:
By Jim Henderson
USA TODAY
,
Smooth is not going to be the
buzzword for the 1987, transi-
tion year of the new tax law.
By 1988, the average tax bill
will fall 6.1% from the bite un-
der current law.
Before' that, though, "It's go-
ing to a bumpy year, and a
very expensive one for some
taxpayers," says Burt Forester
at the accounting firm Price
Waterhouse.
411
transition
The biggest bump may be a
tax increase. Reason: The law
will phase in the lower tax
rates slowly and phase out
many deductions quickly.
In 1987, according to the
? Joint Committee on Taxation,
'on average:
I Households in the $75,000
to $100,000 income range can
expect a federal income tax in-
crease of 4.3%.
Households in ' the
$100,000 to $200,000 range will
see their tax bills jump 4.8%.
II Those with incomes above
$200,000 can expect a whop-
ping 9.8% increase.
III Households with incomes
below $75,000 will see their tax
bill fall - 1% for those just un-
der $75,000 to 57.2% for these
with incomes below $10,000.
The new law calls for two
tax rates, 15% and 28%, plus a
5% surcharge on spme upper-
income households, boosting
their top rate to 33%. But for
1987, there will be five rates:
11%, 15%, 28%, 35% and
38.5%. That compares with 15
rates, from 11% to 50%, under
current law.-
So while the lower rates Will
not be fully in effect in 1987,
the elimination of many tax
breaks will be well under way:
135% of consumer loan in-
terest will not be deductible.
135% of losses from tax
shelters can't be written off
against income like wages.
- Only those miscellaneous
expenses above 2% of adjusted
gross income are deductible.
11 The up-to-$3,000 deduc-
tion for two-earner couples will
begone.
Approved For Release 2011/01/10: CIA-RDP89-00066R000400070052-7
IDUaTIONS tions won't be worth as much.
t Eileen Sharkey, president of
financial :Planners E.M. Sher-
key &Associates, penver.
Y short-term advice is any-
body who claims miscella-
neous
deductions charita-
ble, medical or unreitnbursed
'
business expenses ? take
thein this year. Don't defer
anything:Clean out your clos-
ets and give to the Salvation
Army. Prepay registrations for
conferences. Con-
sider
havinkany medical work
done this year or prepaying
whet you plan to have done
next - year. Get your children
going on OrthOdontal work and
to prepay for that. ;
?
HOUSING
Ronald E Poe, president of ,
Mortgage Bankers Associa-
tion of America, president of
Dorman 8g'Wilson Inc., White
Plains, N.Y., mortgage bank-
*.
Tax rates will come down
or home buyers in the 50%
ax bracket down to 28% or .
? 33%. For them,- the after-tax
Cost of mortgage interest will
he greater, because the deduc-
Fifteen-year fixed-rate mort-
gages carry lower interest than
30-Year fixed- mortgages, so
they might be more attractive
if you can afford it. Also, the
market for houses in the
$150,000 to $300,000 range
probably will soften. I see a
10% drop in prices. As for
, down payments, borrowing the
least amount of money makes
the most sense, So make as big
a down payment as you can af-
ford. Multifamily unit tents
may go up 15% to 20%, so rent-
ers might want to buy.
, ,
_
BORROWING ,
Luther, R. Gailing, president
of non-profit Budget and
Credit Counseling Services
Inc., New York,
. The only consumer credit
that's going to get any tax
breaks is home equity loans.
Buy cars and other big-ticket
items now. It's the time to do it s
because you can deduct the
sales tax and the interest you'll
pay to borrow to make the pur-
chase. I'd say use your credit
cards less because you won't
be able to deduct the interest.
law, they ?f-
a on how to protect
ey from the 114S7
- ? 401(k) retirement savings
withiu?4 from plans will drop to $7,000 from
mild I sell My stocks in the current$30,000 beginning
986 or wait? Baltimore engi- in 1987._ _
neer,Michael Lucas has mu- workers d IRAs as
? . Generally, worke should
al 'Lind investments that, all fund 401(10s an
tsengequal; he would much as Possible this year,
?
P'bf several 'Years. But says Condron. Then consider
ee's?`-9r considering cashing, in other tax-free or tax-deferred
shares in 1986 and investments,, such as munici-
e" 4lld
n buying them back. That pal bonds, universal life in-
ay': he rasonsts.;,,hiS long- surance and U.S. Savings
etnc:Capitat: gains- will be Bonds, before funding a 1987
axed at current lower rates; IRA with after-tax dollars. '
mightThat . not wise: : What about MY tax shelter
yOif. thinlv, your, investments investments? Typically, tax
will continue to gteW in value: shelters are investments
Money:- spent ? this year on managed by others that gen-
commissions sell a stock crate paper losses in early
and taxes on it 'profits no Yenrg- Investors deduct the
w
longer i/V6 A be earning h1.7. losses to offset their other in-
comeif' yinr. stocks come, Such as wages and
fall, you've paid taxes need- stock dividends. The tax law
IfYo4 were thinking of puts a crimp in shelters by
sellingprow'fitabl stock with- Saying losses from so-called
in tl10.0kte
fe months, tax Passive investments, those
revision or not, then sell in managed byothers,ctnbe
- - ? - deducted only against
y gairts
pas-
"But don't Sell Solely for tax sive-investment profits.
says Richard For new shelter invest-
Graber, vice president of the rnentS, the new rule applies
financial services Arm Wad- immediately. For invest=
ell & Reed. nients made before President
What else de I do before Reagan signs the bill, the
e' end of the year? Victoria law, shelter ni we-offs against
'dteWs- of Howard Beach, regular income are phased
- !Awing a new Honda Out. In 1987, 65% of losses are
lylethis year. Andrews, -," 'n 1988; 20% in
.1(4 ' deductible against regular in-
t' attendant; *ants the cane; 40%. th.
'es - 1989; 10% in 1990 and_tic?
at'S a good move for ite7 'Mg after that.
rniiers: If you're planning a If you expect losses in
fu-
big-ticket purchase, think ture years from a tax shelter.
ebOutbtiyirig this year. Under investment, make new profit
plan, sales taxes won't making passive investments
deductible next year. whose earnings Can be
,Take : all; Possible deduc- matched against your passive
ions in 1986, when tax rates losses, says P. Kemp Fain,
are higher; and defer income Knoxville, Tenn.,_ certified fi-
iintitnekt year. Ask your boss nancial planner.
to hold' your year-end bonus Is real' estate still a good
.mntilJanuary; give more to investment? "The answer is
charity - in 1986 and prepay complex," says Fain. Most
s te income takes in Decent.- real estate investments are
et instead of waiting for the automatically classified as
111 to come in January. - passive under the new rules,
Which is the better invest- so losses will be deductible
menk dividend-producing only against income from
stocks Or growth stocks? passive investments. ?
Stock i dividends and bond But people who own and
10req' income will look manage rental property can
'Ore: atitne4v0: PO4* tax deduct up to $25,000 of net
Otg belag lowered; high- .real estate losses a year
tyidencl:Paying stocks such against wages and other ordi-
utilities be likely in- nary income. The write-off is
meats. phased out for taxpayers (sin-
year ? ago- Waddell & gles and joint filers) With ad-
_eed WOn, etomthending justed gross incomes of more
wth-stock itnituai funds to than $100,000; it's lost at the
middle-income families. Now $150,000 level: Fain says indi-
the firm LS Suggesting mixed viduals should still consider
ih and income funds that rental 'property investments.
er 4-C,otithitiatibn of appre- Disagreeing is Dr. Rasik
.ciation and dividends. Lakhani, a Huntington,
But the planners, still like W.Va., physician who owns a
growth stocks. "If you buy a six-unit apartment house in
stock for $5, hold it for sever- nearby Ceredo, W.Va.
_
years and Sett it for $20, hard plans to sell his building
OS a vaitiote tax-deferral because tax overhaul's lower
eV-ice," says Graber. tax rates Make mortgage in-
What should I de about re- terest, and expense deduc-
tienhent? ,Vnder., the new dons worth Icsa to him.
rniedi, some -workers' : $2,000 Condton also says expense
maximum individual retire- deductions will be worth less
ent account contributions when rates are lower. He be-
will Out The lieves that will force Many
'ase-out hits people covered families who own cominna-
- a retirement plan at work tion vacation/rental homes to
who have more than $25,000 sell out, hurting resort mar-
of adjusted gtoss income for ket values.
singles",", $40,000 for joint ? Do I ?need professional
lets' The deduction is lost help? The Pros say we need
completely at $35,090 singles, help- to take maximum ad-
$59,000 joint: Workers denied vantage of new rules. But
the deduction 'still can fund doWn the road, some plan-
' ,IRA with after-tax dollars. nets Worry, that they'll lose
employee con- ? clients' as the taxlaws be-
bUtiO0 erred- come more streightforwaid.
CAPITAL GAINS
Glenda Kemple, certified
public accountant,, certified
financial planner, Carter Fi-
nancial Management, Dallas.
Would you have sold an as-
set soon without a tax law
change? If so, sell this year.
You'll pay less tax on your
long-term capital gains. How-
ever, if you planned to hold the
investment for the long term,
don't sell now. If you do, you'll
have less of your money work-
ing for you ? if you're in the
top tax bracket, 20% of that
profit will go for taxes.
IRAS
Charles E, Battle, certified fi-
nancial planner, president of
Battle & Co., financial plan-
ners, Aurora, Colo.
If you, have an IRA, make
the maximum contribution this
year and keep your money
there. You'll still reduce your
taxable income, and your IRA
earnings will still be tax-de-
ferred. It will lose some of the
luster but not all of it As for fu-
hire contributions, you might
consider an annuity, which
alsO has tax-deferred earnings.
_ By Bill Janscha, USA TODAY
GLENDA KEMPLE: Selling assets now will
mean less tax on capital gains.
TAX SHELTERS
John M. Cahill, certified fi-
nancial planner, Carroll/Ca-
hill Associates, San Francis-
co.
There just aren't many tax
shelters left. Be wary of pur-
ported tax shelters -- you
might be grasping at straws.
About the best tax shelter left is
the interest deduction on your
home. So if you're renting you
might want to buy.
By Eric Lars, PHOTO STAFF ,INC.
CHARLES BATTLE: Add to your IRA to ug-
Ment tax-deferred earnings. s
SAVINGS
Jim Jorgensen, editor of The
Jorgensen Report newsletter.
Savings accounts look a lot
inore attractive when you're
paying taxes at a 28% rate
rather than a 40% or 50% rate,
but! don't think the inflow of
savings is going to increase be-
cause of tax overhaul. There
are more attractive low-risk in-
vestments. Investors with bank
CDs should look at insured
Government Notional Mort-
gage Association (Ginnie Mae)
certificates and tax exempt
municipal bonds, both of which
are yielding more than CDs.
mssmmeamessonamessrannwas
REAL ESTATE
Phil Wiesner, partner in na-
tional tax practice of Peat,
Marwick, Mitchell & Co.,
Washington, D.C.
Tax considerations in real
estate become a lot less impor-
tent because of the increased
depreciation schedule. Also,
tax losses are going to be light-
ed. Real estate losses can offset
real estate incothe, Or incokne
from sh-called passive invest-
ments, such as Innite,d partner-
ships, managed by others, But
you won't be able tp reduce
your taxes on wages and other
income with real estate losses.
There is an exception for indi-
viduals who own rental propCr-
ty: Up to $25,000 of real estate
losses are deductible from or-
dinary income.
The threat of tax reform
measures has caused real es-
tate prices ? rental real estate
? to drop. One view is that
now might be a good timeto
make a real estate investment
because prices are down.
INVESTMENTS ;
Richard Mich', certified *-
lie accountant and lawyer,
president of Capital Strac-
tures Advisory Corp., a regis-
tered investment advisory
firm, Chicage. j
Companies will be making
more efforts to sell you univk-
sal life insurance and Variable
life insurance policies, which
include an investment fea e.
That's becauSe taxes on the
cash buildup in the policy re
deferred until you cash it in. Be
careful with variable life '?
you dbn't know what the c*h
value or the value of the polcy
is because it fluctuates with the
market and has more risk.
Reported by James Cox
? 1
PEI? SONAL
FINANCIAL,
PLAN
Before you talk to anyone else about Tax Reform, you should
talk to us. Because to make the most of the new tax laws, You
need a clear, comprehensive view of your total financial picture.
And that's exactly what an IDS Personal Financial Plan will give you
-
The time to talk to an IDS Planner is right now Your planner
will help you minimize your 1986 taxes. And tell you how to take
full advantage of the new tax laws for 1987 and beyond.
IDS is an American Express company. We've seen tax reforms
come and go for over 90 years. And nobody can relate these
changes to your overall financial situation like we can.
So call or mail the coupon today, since the cost of your plan
is tax deductible until the end of 1986.
Send to: IDS Financial Services Inc , IDS Tower, Box 9464, Minneapolis, MN 55440. Or call 1-800-437-4332.
El I'd like a free 30-minute consultation. LI A free copy of "Understanding Tax Reform: The New Rules."
I understand there is no obligation on my part
NameAddress
,
City State
0 IDS Financial Services Inc. 1986. An American Expres.s company
Phone(
?Approved For Release 2011/01/10: CIA-RDP89-00066R000400070052-7
ym
Approved For Release 2011/01/10 : CIA-RDP89-00066R000400070052-7
USA TODAY ? MONDAY, OCTOBER 20, 1986 5E
*Line 4: Multiply adjusted gross income (line 33 on the
1040) by 7.5% rather than the current 5%.
?Linea 8a, b: Eliminated.
SCHEDULES A&B
(Form 1040)
Department of the Treasury
Internal Revenue Service
? Schedule A-Itemized Deductions
(Schedule 13 Is on back)
Attach to Form 1040. 110. See Instructions for Schedules A and B (Form 1040).
OMB No. 1545-0074
8
07
Name(s) as showr.r onlerm.1040
Your social security number
Medical and
Dental Expenses
(Do not include
expenses
reimbursed or
paid by others.)
(See
Instruc-
tions on
1 Prescription medicines and drugs; and insulin
2 a Doctors, dentists, nurses, hospitals, insurance premiums
you paid for medical and dental care, etc. .....
b Transportation and lodging . . ?,. . ....
c Other (list-include hearing aids, dentures, eyeglasses, etc.)
V .
3 Add lines 1 through 2c, and write are falai here
4 Multiply the amount on Form 1040, line 33, by 5% (05) .
1, ?
a
2b
3
4
5 Subtract line 4 from line 3. If zero or less, write -0-. Total med'cal and dental.
2a
2b
?
2c
3
4, 4
5
'Line 11: Mortgage ihterest still deductible on first and
second homes on loans up to the cost of the homes plus
improvements Interest on mortgages dated Aug. 16,
1986, ,
or earlier, is fully deductible on loans up to the mar-
ket value of the home. Interest on,home-secured loan's to
pay for medical or edjication costs is deductible for loans
up to the market value of the home, minus any other mort-
gages
,
tieSTOu . ? :
8
(See ? ?
Instruc-
age 20.) 9
tions on
State and local income taxes . . . . . .
?
Real estate taxes ... . .... . . . .
a General sales tax (see sales tax tables in instruction booklet)
b General sales tax on motor vehicles . . . . . .
Other taxes (list-include personal property taxes) IS
10- Add the-artioants on lines 6 throu
6
7
8
8b
It 9. Write the total here. Total taxes
10
6
7
8a
8b
0 Linea?, 12, 13: Consumer interest deduction eliminated
after a phase-out 65% deductible in 1987; 40% in 1988;
20% in 1989; 10% in 1990; nothing after that interest on
investment loans, such as stock margin accounts, is de-
ductible only against investment income.
? Lines 20-23: Add up all your miscellaneous deductions
- including the unreimbursed employee business ex-
penses You can deduct amounts exceeding 2% of ad-
justed gross income.
NEW: Moving expenses are a new itemized category,
but not subject to 2% floor.
I Lines 25, 26: Line 25 eliminated. Current tax tables
build in zero-bracket amounts These are replaced by
standard deductions for non itemizers For 1987: joint
filers, surviving spouses, $3,760; singles, unmarried
heads of households, $2,540; married filing separately,
$1,880. For 1988: joint filers, surviving spouses, $5,
unmarried heads of households, $4,400; singles, $3,000;
marrieds filing separately, $2,500.
In addition, taxpayers age 66 or older and blind taxpay-
ers get extra standard deductions worth $750 for singles
and $600 each if married Also, blind and elderly taxpayers
get the larger 1988 standard deduction a year early. So for
1987 a single, blind, elderly taxpayer gets to take a $3,000
standard deduction plus an extra $1,500 deduction.
-
Interest You
Paid
e
tions on
page 20.)
Contributions
You Made
(See
Instruc-
tions on
page 21.)
Casualty
Theft Losses
Miscellaneous
Deductions
(See
Instruc-
tions on
page 21.)
11 a Home mortgage interest you paid to financial institutions . .
? -
b Home mortgage interest you paid to individuals (show that
person's name and address) I*
12 Total credit card and charge account interest yciu paid .
13 Other interest you paid (list) to
11a
11b
12
13
? 14 Add the amounts on lines ha through 13. Write the total here. Total interest .
15 a Cash contributions. (If you gave $3,000 or more to any one
organization, report those contributions on fine ,15b.) .
b Cash contributions totaling $3,000 or more to any one
organization. (Show to whom you gave and how much you
gave.) fro
16 Other than cash. (You must attach Form 8283 if over $500.).
Bottom line
Summ f
Itemized
Deductions
(See
Instruc-
tions on
page 22.)
+
17 Carryover,from prior year
18 Add the amounts on lines 15a through 17. Write the total here. Total contributions ?
15a
14
15b
16
19 Total casualty or theft loss(es). (You must attach Form 4684 or similar statement.)
(See page 21 of Instructions.) 01,
20
20 Union and iirofessional dues
21 Tax return preparation fee
22 Other (list type and amount) 10
18
'
9
10
11a
llb
12
13
14
15a
15b
16
17
18
19 19
2
22
23 Add the amounts on lines 20 through 22. Write the total here. Total miscellaneous .
24 Add the amounts on lines 5,
,
25 If you checked Form 1040
,
10, 14, 18, 19, apd 23. Write your answer here. ?
(Filing Status box 2 or 6, write $3,540
Filing Status box 1 or 4, write $2,390
Filing Status box 3, write $1,770
26 Subtract line 25 from line 24. )Write your answer here and on Form 1040, line 34a. (If
line 25 is more than line 24, see the Instructions for line 26 on page 22) >
23
/7
20
21
22
23
Moving expen
24
)00(
24
25
25
26
,
tax rates ,
-
Use these tables to figure how much tax you would pay on your taxable in-
come. (line 38 of Form 1040), A set of five transition rates will be used in 1987.
In 1988, there will be only two tax rates - 15% and 28% - but a third rate of
33% also will be used to phase out the benefit of the 15% for higher income
taxpayers. Eventually, higher-income taxpayers would pay 28% on all their
, -
taxable income, 1987
Single taxpayers
If taxable income ''' but not 'Fax rate of amPoof
is more than more than is . , over ,-.-
0 ' $1,800 11% $0
, , $198+15% ' $1,800
$1,800 $16 800
' $16,800' $27,000 $2,448+ 28%- 16, 800
$27,000 $54,000 $5,304+ 35% $27,000
$54,000 $14,754+ 38.5% $54,000
Joint filers*
,
If taxable income but not Tax rate of amount
_ is more than , more than is over
,
a $3,000, ' 11% ,
$3,000 $28,000 = $330+15% $3,000
28,000 $45,000 $4,080+28% ' $28,000
45,000 $90,000 $8,840+35% $45,000
90,000 :$24,590+38.5% $90,000
*Rates for married couples filing separately are half the joint rate. For example, 11% on the
' first $1,500, 15% from $1,601 to $14,000, etc.
Heads of household
If taxable ilICOM0 but not Tax rate of amount, .
is more than ,- more than is over
?
0 , $2;500 , 11% $0
- $2,500 $23,000 $275+15% $3,000
23,000 $38,000 $3,350+28% $28,000
8,000 $80,000 $7,550+35% $45,000
$80,000 $22,250+38.5% $90,000
,
1988 .
Single taxpayers t
If taxable income but not, Tax rate of amount
, . .
is more than more than is . over
.$17,850 15% $0
17 850 43,150 $2,678+28% 17,850
, ,150
.$9,762+33%
d150 ? 89,560
89,56 28% of entire amount ?
,..
Joint filers*
If taxable income - but not Tax rate , of amount
if
is inCeli than more than is ? Over
0 ' $20,750 15% $0
$29,750 , $71,900 $4,463+28% $29,750
- $71,900 $149,250 $16,265+33% $71,900
$149,25 28% of entire amount
*Rates for married couples filing separately are 15% on the first $14,875, 28% on the
amount exceeding that. ,
Heads of households
If taxable income ; but not tax rate of amount
is more than q More than is over
$23,900 A , 15% $0 ?
$23,900 $61,650 $3,585 + 28% $29,750
$61,650: $123,790 $14,155 + 33% $61,650
' $123,790 , , 28% of entire amount '
- - .
,
NOTE: After you have reached the point where you pay 28% on all your taxable income ($149,250 for joint
Melt, $89,560 for singles and $123,790 for heads of households), the law imposes an additional 5%
surcharge. That wipes out the effect of all personal exemptions. It will take a 5% surcharge on $10,920 of
taxable income to phase out each $1,950 exemption claimed.
, Take, for example, a couple filing jointly in 1988 with $200,000 of taxable income and two personal
exemptions claimed. The tax rate is 15% on the first $29,750 of taxable income; 28% from $29,751 to
$71,900; 33% from $71,301 to Si 49,250.1t also is still 33% from $149.250 to $171,090 ($21,840 worth of
taxable income to phase out the two exemptions); and 28% on the last $28,910.
-
Sour: Joint Tax Committee .
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Look at how much capital gains tax rates will
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? Long-Term Capital Gains Tax Rate
? By Joint Taxable Income
Year $30,000 $50,000 $70,000 $100,000 $i50,000
1986 10.0% 15.2% ' 16.8% 18.A 2a0%
1987 28.0 28.0 28.0 28.0 28.0
% Increase
'87 over '86 100% 84% 67% ? 56% 40%
For example, if your joint 1986 taxable income
is $50,000, then you'll pay 15.2% tax on your capi-
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..'?ran increase of 84%. ,
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,
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There may be a difference between the price
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Approved For Release 2011/01/10 : CIA-RDP89-00066R000400070052-7
_
Approved For Release 2011/01/10 ? CIA-RDP89-00066R000400070052-7
6E ? MONDAY, OCTOBER 20 986 ? USA TODAY
ON HOME EQUITY
ANSWERS TO YOUR QUESTIONS ABOUT THE NEW TAX LAW
What are the new rules on deducting home-loan
interest? ?
--l...H., Wilmington, Del.
You'll .be allowed a deduction for interest on mort-
gages and other loans secured by your principal residence
and a second home. The deduction will be limited to the
interest On loan amounts up to the purchase price plus
improvements. So if you have one house that you bought for
$70,000 and you add $5,000 in improvements, you can
deduct interest expense on home loan balances up to
$75,000,. If you borrowed against your home by Aug, 16,
1986, interest is. fully deductible on loans up to the home's
market value. There is also an exception for home-secured
loans to pay for medical or education costs: Interest will be
deductible up to the market value minus other mortgages.
Last January we bought a new Cadillac. I know
_
the interest on the car loan is deductible iti 1988, but
what about after that? Would it be possible to take a
* second mortgage on Our house this year to pay off the
car loan? ,
? R.K, Batavia, Ohio
Yes. Interest on consumer loans, including car loans,
won't be deductible after a phase-out In 1987, 65% of
consumer-loan interest will be deductible; 40% in 1988;
20% in 1989; 10% in 1990; and nothing after that Interest
on a qualified loan secured by a house will be deductible no
matter what you do with the money. So using a home loan to
pay off your car loan might save you money.
Will interest on a home equity loan taken out to
pay dental bills be deductible?
? D.Z., Philadelphia
Yes. The general rule is that interest on a home equity
loan is deductible if the loan is secured by your principal
home or a second home, and your total loans on the two
houses total no more than their purchase prices plus the
cost of improvements. ,
On top of that, the new,
rules allow extra interest
deductions for any home equity loans used to pay education
? and medical expenses. Interest en home equity loans to pay
dental bills will be deductible up to the current market
value of your home, minus other outstanding mortgages.
I took out a personal loan to install central air
conditioning in my home. Will the interest expense on
? this loan be deductible?
R.S. Chamblee, Ga.
No. That is a consumer loan because it is not secured
by your home, so you will lose the interest deduction after
? the phase-out However, because central air conditioning is
a home improvement, the cost will increase the maximum
amount on which you could deduct mortgage interest.
,
- What about interest deductions on a mobile home
lOan?
C.S., Pittsburgh
,
You will be allowed to deduct loan interest expense on
a mobile home that is used as your principal residence or as
a second home. Otherwise it will be considered a non-
deductible consumer loan subject to the interest phase-out
By William-Giese
P.A *TODAY
What, exactly, is a home equity lean?
"It's just a glorified second mortgage,"
says John Hart, president of Old Stone
. Credit Corp. in Jacksonville, Fla., and a
director of, the National Second Mort-
e' Associatien. -
A
'second mortgage is a loan secured
?. by :alien on your home. A first-mortgage
holder has, first crack at.yont "house in
the Cage of a loan default; a second-mort-
gage holder is next in line for what's left.
About 85%. of all second mortgages,
SOO a,s home improvement loans, are
cenVentiOnal loans, says liaYt;
However, the home equity loans that
Make Up the remaining 15% are a bit
fancier -- Second mortgages that give
. You ,an automatic line of credit, to use
? when you need it-
' Under a home equity loan, You ar-
range with a lender for a line of credit
Secured by your home." 'You can write
Spetial checks hp to the approved
amount, and you make payments on the
,Monthly revolving balance. A typical
f monthly payment including interest and
principal, is 2% of your balance.
- Here's how it works: Say the home you
bought for $55,000 is worth $100,000 now
' and you have $40,000 left to pay on it
The maximum credit line usually is
80% Of the appmiSed value of your
home, Minus any existing mortgages.
k. So, for a house appraised at $100,000,
your line of credit would be up to $40,000
$80,000 (80% of the value) minus the
? 2 $40,000 existing mortgage.
But now the tax rules add another lim-
it On a? home equity loan taken out after
Aug, 16, 1986, the mortgage interest gen-
erally is deductible only on loan balances
totaling the purchase price plus any
im-
provements -- in this case, $55,000. After
''you subtract the $40,000 first mortgage
balance; you're left with $15,000. A bank
probably would lend you more, but the
?i interest wouldn't be deductible.
? The average balance on a line of cred-
-,? it is between $10,000 and $15,000, says
George Kilgus, s Jr., vice president of Citi-
? zens. Savings/Citizens Trust in Provi-
dence, R.I.
For new homeowners, home equity
loans aren't much of an option. These
e days; the average home buyer pays 20%
to 25% cash and borrows the rest, ac-
cording to the National -Association of
Realtors. If a newly purchased home is
80% mortgaged, there's no equity to tap.
Of course, if the loan is for a home im-
,provernent ? say, ni add a sun room or
- remodel a kitchen ? that doesn't matter.
You're boosting, your home's value, and
? thus the equity against which you can
? borrow. Reniember, the new limit for the
interest deduction is purchase price plus
Jrnprovements.
;
Borne equity interest rates are in the
By William Giese
USA TODAY
Thanks to the new, not-so-
simple tax law, we may be tak-
ing out loans on the family
holm to buy a car, to pay off a
credit card balance or to take a
skiing trip to Aspen, Colo.
That's because the current
rule allowing tax deductions
for loan interest will be tipped
on its ear starting next year,
when interest deductions on
consumer loans will be elimi-
nated in a four-year phase-out
? In 1987, only 65% of consumer
interest will be deductible,
40% in 1988, 20% in 1989, 10%
in 1990 and nothing after that
At the same , time, interest
deductions still will be allowed
on loans secured by a inert-
What's changing
Deductibility of consumer
interest.
What hineats:
Consumer interest deduc-
tions will be'phased out
over four years. More bor-
rowers will be using home
equity loans. Mortgage in-
terest remains deductible.
Taxpayers claimed interest
deductions (including mort-
gages) on 34.6 million
returns in 1984.
gage on your principal or sec-
Ond home ? up to certain lim-
its ? even if the loan is used
for such non-hOme purposes as
buying a boat or paying off
your credit cards.
Starting in 1987, you'll be al-
lowed full interest deductions
on mortgage loan amounts up
to the purchase price of your
Home equity gives
owners credit opt ions
er loans could be paid off by
borrowing on a deductible
home equity account; says Lea
mon. For example, you might
want to pay off an existing boat
loan with proceeds from a
home equity loan, because
your boat loan interest deduc-
tion is about to be phased out
Then figure out whether
your after-tax interest expense
on a home equity loan is cheap-
er than your current loan.
Don't scrap your 3% student
loan, for example, for a 10%
home equity arrangement ?
As a rule of thumb, Deloitte
Haskins & Sells -estimates that
for a five-year loan from 1987
to 1991, a 10% home equity
loan with $250 in closing costs
would be cheaper after taxes
than a consumer loan with in-
terest of more than 8.88%.
But watch out ? a home eq-
uity loan can be dangerous. It
may be too easy to eat into the
equity in your house to pay foP
unnecessary purchases.
Don't pay for impulse Pur-
chases using a home equity
loan, says George Barbee, ex-
ecutive director Of Consumer
Financial Institute in Newton,
Mass. "If you start frittering it
away in small chunks, that's a
real warning sign." -
Phyllis Burgess and her bus-
By William Giese
USA TODAY
When Phyllis Burgess of
Kennesaw, Ga., thinks of home
equity loans, it's in terms of
coins, computers and the 1976
Lincoln Continental she's think-
ing of trading for something in
the midsize range.
Toms River, N.J., elemen-
tary school teachers Ronald
and Linda Janesko are consid-
ering opening up a credit line
secured by the four-bedroom,
two-story home they built for
$50,000 in 1973; just in case
they need a loan somewhere
down the road.
The new tax law makes such
home loans for non-home pur-
chases suddenly more attrac-
tive, because you'll be allowed
to deduct interest on home
loans (up to certain limits; see
Taxline at left) but not on con-
sumer loans.
Do you need a fast home eq-
uity loan, too?
"Don't do anything dramat-
ic," urges Jerry Leamon, direc-
tor of executive financial coun-
seling with the accounting firm
Deloitte Haskins & Sells. "Ifs
important to step back and con-
sider what's best."
First, review current debt
and see which, if any, consum-
2nd mortgage'
re's how it works
An after-tax
comparison
Here's a comparison of the after-
tax interest cost of a five-year,
$10,000 home equity loan at 10%
interest (with deductible mortgage
interest), and an 11% unsecured
loan (with the consumer interest
cleductipn phased out by 1991):
0?/ interes
0
Year
Interest
exPense
After-tax
cost2
? 1987
1988
1989
" 1990
1991
S?77
$807
1619
412
183
$703
81
1544 6
297
' 132
Total
$2,998
$2,159
11% utisecured3 1,4an
Year
Interest
expense
1987
$i,022
1988
838
1989
1990
04
1991
$149
After-tax
cost2
1597744
8336
93
$149
Total $3,045 $2,719
1-Home equity loan includes 2.5 points ($250
in up-front charges) amortized over the life of
the loan. ,.
2-Assumes a top 28% tax rate in both cases.
3-Typical rate for an unsecured line of credit.
Source: Deloitte Haskins & Sells
USA TODAY
9% to 10% range now, says Gail Liber-
man of Bank Rate Monitor. Some lend-
ers are offering introductory rates as low
as 5.9%, but they rise after a few months.
Careful, though: Annual interest
charges on home equity loans often fluc-
tuate based on the prime rate. If inflation
heats up again, your rate will rise.
"I don't know of a major bank that isn't
doing strategic planning to aggressively
get into this market," says Patrick Harri-
son, executive vice president of Com-
merce Union Bank in Nashville, Tenn.,
chairman of the American Bankers Asso-
ciation consumer credit division.
Lenders already are at war in Atlanta:
Competing banks are waiving initial costs
on home equity loans, including apprais-
als, title searches and points. Those up-
front costs normally can run $500 or
more for a $25,000 line of credit
Atlanta-lased Georgia Federal Bank is
waiving closing costs and annual fees.
The bank offers a variable interest rate,
currently 9.4%. -
Georgia Federal has received 5,000
applications since Aug. 1, compared with
only 1,000 for all of 1985.
home, plus improvements.
That means you usually can't
borrow against the amount
your home has appreciated.
Of the $54,000 average equi-
ty, 65% is appreciation, says
Purdue University's Credit Re-
search Center. That leaves
35%, $18,900 on average, avail-
able under 'a home equity line.
Appreciation can be tap
under exceptions in the nil :
Interest on home-secured
loans to pay medical and edu-
cation costs is deductible on
loans up to the current market
value of your home, minus any
other mortgages.
Interest on loans made by
Aug. 16, 1986 (the date the bill's
details emerged), will remain
-fully deductible even if the
loans exceed the home's price
plus improvements.
Over the years you couldiap
your equity again and age: in,
eventually far exceeding the
price of your home and im-
provements ? as long as the
total (ivied at any one time did
not exceed the limits.
One other exception: We'll
be allowed to deduct interest
for any type of loan used to pity
for investments, such as stock
purchases. The deduction is
limited to the arriount of invest
ment income after subtracti
losses. So if you '-used a home.
secured loan to make inveSt-
ments, that interest could 6e
deductible for loan amounts
that exceed the ordinary mort-
gage loan limits.
The new rules make tradi-
tional car loans and credit 'aid
purchases more expensive af-
ter tax costs than a home loan,
say, to buy a new car. Thai's
why lenders are touting home
equity loans.
The 55 million USA families
who own their own homes
have an estimated $3 trillion Of
equity in their homes ?On a*-
erage of more than $54,000.
,FUTURE COLLATERAL:. Ronald
for $50,000 in 1973, to secure a
band, Robert, an accounting
- systems consultant, got a
$23,000 home equity line of
credit on their three-bedroom
split-level two years ago in or-
der to consolidate $18,000
worth of bills.
This year the Burgesses
charged $10,000 worth of IBM
hardware and software, Used
partly by the family and partly
for Robert's consulting busi-
and Linda Janesko of Toms River,
credit line for future loan needs.
ness, on a Sears, Roebuck & Co.
credit card at 21%. The couple
bought $1,000 worth of gold
and silver coins on a Visa card
at 18%.
Those high interest costs will
get even more expensive next
year, when the deduction starts
to be phased out, says Lemon.
Even without tax overhaul the
Burgesses would be better of
paying off the credit cards with
N.J. may use their home, b
their home equity loan, a vart-
able-rate loan now at 19%. 4*.
Should you buy a new cat
next year with a home equi"Or
loan? Interest rates on car
lows from automakers ha'a
been low. lately under autD-
grams, Its hard to SO
ii
you .want to buy, but check ail
makers' cut-rate financing Ore:ge
programs will be around when
available rates before buying._
o of Twentieth Century's common stock funds,
Select Invest* arid Growth Investors, each reported 44n,
annual compound rate of return of 28% for the 10-yea
period ending June 30, 1986, while the Standard & Poor's 50
Stqck Index reported ,a 15% return..
Comparing the performance of the S &P to the performance of
these two Twentieth Century funds is like comparing a baseballs'
? player hitting .333 to two Players each batting over .630!
Compare these stats to the performance of your IRA. Then, if
' you'd like to consider having Twentieth Century go to bat for you
call or write for a free prospectus. Please read the prospectus
carefully before investing.
`No-Load, No-Minimum Mutual Funds
mum maum im nem spsi misa q
Please send a free prospectus to 111
\:\C
r
\\?,,
usAB6102g, P.O. Box 200, Kansas City, MO 64141-1-800-345-2021, ext. 801
\? timn =is ia ate was masi WI MON BM 'EINI ET= OM ill
4\\\\
Address
City
'
State Zip
*This rate describes past performance, and is not a projection for the future.
Approved For Release 2011/01/10: CIA-RDP89-00066R000400070052-7
Approved For Release 201 1/01/10 : CIA-RDP89-00066R000400070052-7
8E ? MONDAY, OCTOBER 20, 1 986 ? USA TODAY
WRIT F
for most shelters
AL ESTATE
ANSWERS TO YOUR QUESTIONS ABOUT THE NEW TAX LAW
In the new rules, what is meant by a passive
investment? Is my rental property considered a
assive investment?
DM., Huntsville, Md.
Yes. Passive investments generally are ones that are
managed by others, such as limited partnerships. Under the
new law, passive losses on an investment will be deductible
only up to the amount of any income from passive
investments. However, the proposal treats all real-estate
investments ? even if ybu're actively involved -- as
passive. Then it makes an exception for rental real estate
owned by individuals. Individual owners will be allowed to
write off up to $25,000 of rental property losses against
other income such as wages, bond interest or stock
dividend& Losses of more than $25,000 will be deductible
only to offset other passive income. The $25,000 break
starts to be phased out for singles and joint filers* with
$100,000 ($50,000 for married filing separately) or more of
adjusted gross income (not counting the loss or an IRA
deduction) and is lost completely at $150,000 ($75,000 for
married filing separately).
? ,
How will this affect teal estate limited partner.
ships that, Were entered into in 1985? .
C.M., Gaithersburg Md.
? The write-off ca passive losses will be phased 'out over
four years for taxpayers like you who invested before the
day President Reagan signs the law. Passive losses will be
100% deductible from regular income in 1986, 65% in 1987,
40% in 1988, 20% in 1989, 10% in 1990 and not Wall 'after
that But remember, you still will be able to use limited
partnership- losses to offset income from other passive
investthents. So if you had one partnership with losses and
another generating income, you could use the losses from
one to offset profits from the other. -
What happens to real estate depreciation?
? M.B., Brimfield, Ohio
It changes to your disadvantage. Currently, deprecia-
tion on real estate is allowed over 19 years, and you can
? take a larger share of the write-offs in the early years. For
- property bought after this year, you will deduct the cost of
residential reel estate in equal installments over 271/2 years;
non-residential property will be depreciated over 311/2
? years. If you buy this year, you are eligible for the current
accelerated depreciation rate.
I recently put my house up for sale. Would I do
better to wait and sell it in 1987?
J.C., Elberta, Ala.
First, your home sale profits, assuming you've owned
the house for more than six months, will be taxable as a
long-term capital gain. If you sell this year, under current
capital gains rules, yciu will pay tax on just 40% of your
profits. So even if you are in the top marginal tax bracket ?
50% ? the rate works out to no more than 20%. Next year,
under the new law, all long-term capital gains will be taxed
as ordinary income, up to a top 28% rate. So if you've got a
choice and expect to pay tax on your profits, sell this year.
Remember, though, that your profit on the sale of a
house is not taxed at the time of the sale as long as you buy
another house that costs at least as much as the old one
within two years either way of the sale date. If the new
house costs less, you must pay taxes on the lesser of either
your house sale profits or on the difference between the
prices of the old and new home.
Under current law, If I'm 55 or older and sell my
house I don't have to pay taxes on $125,000 of the gain.
Will that rale still apply under the new law, or Should I
hurry up and sell my house before the end of the year?
? P-B., Elmont, N.y,
No change here. This one-time $125,000 exclusion
when a, homeowner 55 or older sells a principal residence
will survive under the new rules.
Are points deductible on a mortgage In 1986?
? ? RS., Poughkeepsie, N.Y.
Maybe. Points are extra charges that home buyers
? sometimes must pay up front to mortgage lenders. Each
point equals 1% of the loan. Points for a new mortgage or
home improvement loan are deductible in the year they.
? are paid. However, the Internal Revenue Service says
? points charged for refinancing your home, rather than
buying a new One, can be deducted only in installments
over the life of the viortgage. None of that will change.
By Neil Budde? ?
USA TODAY
In the hands of marketers,
the term "tax shelter" has
come to cover a lot of territory.
Now? after the hoopla sur-
rounding the tax overhaul leg-
islation, some promoters sug-
gest that rumors of the death of
tax shelters are exaggerated.
But in the true sense of the
word, -tax shelters are history.
"If they're not dead, they're
a fraction of their former
selves," said Paul Farber of the
Richard A. Eisner accounting
firm in New York City.
A tax shelter LS designed to
produce large losses on paper
that an investor can deduct
from ordinary income, like sal-.
_ ary, interest and dividends, to':
, reduce his tax bill ? some-.
times to zero.
Under the new law, though,
you'll be able to deduct shelter
losseaonly up to the amount of
your pcorne from similar so-
called passive investments ?
those in which you take no ac-
tive role. So if you don't have
passive investments that make
money for you, yciu lose the
write-offs from your existing
shelters over four years. New
shelters lose right away.
? Will interest on a loan to buy a time share in a va-
ation condominium be deductible as mortgage inter-
s expense?
? ? - E.C., Nashvilie
Probably. not Interest on time-sharing contracts,
? which give you rights to a beach condominium, say, for a
certain number of weeks a year, will not be deductible,
many tax experts say.? but the opinion is by no means
Unanimous. Arguing against deductibility is the fact that
time-share contracts typically buy the right to use a
residence, not the residence itself. Because the new law
?lows interest' deductions only on loans secured by a first
r Second residence, a time-share contract loan not secured
a residence will not be deductible. However, this is
definitelY still a fuzzy area, tax experts say, and it might
take an Internal Revenue Service ruling or a Tax Court
ase
to settle the matter. ?
? What about the current special incentive for
preserying historic buildings?
? F.J., Salt Lake City
It gets smaller. Under current law taxpayers are
lowed a maximum 25% tax dr credit for the cost of
rehabilitating historic structures and up to 2o0 for rehabili-
tating old buildings. Tax overhaul rules that credit to
20% for historic buildings and 10% for buildings built
before 1936.
Is a minister's housing allowance still tax-free?
? J.W., Seguin, Texas
Yes. ? Rabbis and ministers are allowed a tax-free
housing allowance from their synagogue or church. Be-
cause of that, the clergy and the IRS have squabbled for
years about the deductibility of home-mortgage interest.
Clergy members Say all their mortgage interest expense
should be deductible; the IRS says part of the expense
should not be deductible if ministers also receive the tax-
free allowance. The tax law gives ministers and rabbis the
entire interest expense dechicllon.
,
?
I understand some hiss write-offs will be disal- ?
lowed under the new tax law. What happens to those
losses? Are they lost entirely, or can you use them in
future years?-
B.H., Pittsburgh
You can _carry losses forward to future years. For
example, the law restricts loss write-offs from so-called
passive investments, such as limited partnership's, which
are Managed by others. Passive losses will be used only to
'offset income from passive investments on new shelters as
soon as the law is signed' it will be phased out for existing
shelters. However, losses not written off can be carried
forward indefinitely te future years for use against future
passive profits. -
ell to
What's changing:
Write-offs from any invest-
ments you don't actively
? manage.
What It means: ,
Deductions for shelter
losses will be limited to
the amount of income
from shelter investments
? in effect, rani-vying the
main reason for investing
in a shelter. ?
Shelters typically are set up
as limited partnerships to in-
vest in assets that qualify for
rapid depreciation allowances
and? tax credits. Popular shel-
ters involve real estate, equip-
ment leasing, nil and gas drill-
ing, cattle feeding and, more
recently, movie production.
The biggest tax breaks are in
highly leveraged investments
? those that borrow much of
the cost of the 'assets. Reason:
Although investors put up a
fraction Of the cost and borrow
the rest, they get all the tax
write-offs as if they had in-
curred all the costa.
Here's how a traditional tax
shelter might work
MI A group of investors ?
$11 billion was invested in
limited-partnership tax
shelters in 1985.
S'77
I The tax credit comes right nates the investment tax credit
off each investor's tax bill ? and stretches out the deprecia-? ?
.$25,000 apiece. Depreciation is tion period on many assets.
dedUcted from income ? The? size of a project's paper
$32,500. Result An investor in losses will be smaller.
Ale 50% tax bracket cuts his In addition, investors won't
? taxes $41,250 ($25,000 from the be able to use losses from pas-
credit, $16,250 from the depte- sive investments to offset ordi-
ciation) the first year. nary income, such as wages,
Lease., revenue and inter- dividends and interest
est and management expense Goodbye, tax shelters. Hello,
roughly cancel each other out, tax-advantaged investments.
An investor could get p Experts say that despite
even higher first-year return tightening of tax loopholes,
by borrowing much of his indi- ? many limited-partnership in-
-' ? vidual investment Some part- vestments still have advan-
say, 40 ? antes up $50,000 nei-ships arrange with banks to tages for tax reasons ? either
apiece to form a limited part- lend investors money. You because they produce tax-free
nership. ? might pay only $20,000 of your income or because they defer
The partnership takes the own money the first year but income, and therefore taxes.
$2 million, borrows an addi- still get the $50,000 tax break. ? Partnerships designed solely
tional $8 million and buys a $10 A partnership typically laits to produce tax losses are being
million computer, which it five years or more. The tax replaced by those that gener-
leases to a large company. breaks , get smaller in future ate income as well as some tax
111Most of. the lease pay- years: The investment tax breaks for investors
merits from the company are ?credit is used only once, inter- "There are real economic
used to Make payments on the est write-offs decline and de- gains to be made in real estate
loan ? largely deductible in- predation sometimes declines and equipment leasing," said
? L f th ac-
of 'Manes* According to gob ert A. counting firm Ernst & Whin-
Stanger & Co., which tracks in- ney. "The risk may be higher
The partnership gets an vestments in partnerships, than investing in blue-chip
investment tax credit of up to shelter-oriented partnerships stocks, but the potential return
$1 million (up to 10% of the raised $11.5 billion in 1985. ? is higher."
cost of the computer). Depreci- But now ?Congress hes Cable TV franchises are an-
ation totals at least $1.3 million' chanted the rules in a big way. other growing area of interest
,
terest the early_yesrS? and as well.
cover the expenses
ing the partnership.
taxexp
the #rst year. ' isFirst off; the new law elithi- for income-producing 'partner-
i, ?
? Here s
mi ed Partner-
?
er changes' .
to make them more attractive:
ponsors can set hp deals
Making the best of the tax shelt
I Instead of borrowing much of
Don't panic if you own a tax
shelter. The situation might not
be as bleak as it seems:. ,
You're fairly safe 't your in-
vestment was made bOfore the,
date President Reagan signs
the tax bill into law.
On those investments, you'll
still be able to use 100% of
your "passive" investment
losses in 1986 to offset ordinary
income. The amount drops to
65% in 1987 to 40% in 1988,
20% in 1989 and 10% in 1990.
After that, passive losses can
be used only to offset income
from passive investments.
' Unused losses can be car-
- ned forward to offset passive
income in future years, and
they can be applied to any gain
when you sell your investment
or the partnership closes out
One strategy: Invest in in-
come-producing passive invest-
ments so you have income,
Oil, gas investors
remain undaunted
By Neil Budde "anything that befalls the part-
USA TODAY .nership.
If the partnership borrows
Howard Hirsch, chairman of against, the production from
The Seville Group, which puts one well to drill others, an es-
t ther oil and gas invest- plosion or other problem at the
rnents, isn't crying over the
new tax law.
Sure, he says, drillers no
longer get a 10% investment
tax credit when they buy new
drilling equipment Also, part
of the deduction for so-called
intangible drilling costs will
have to be added 'back into
your income if you calculate
the alternative minimum tat.
"But we have been relatively
unhurt," Hirsch says.
The reason: Congress left a
door open for the oil and gas in-
dustry. The new law allowS
vestors with a "Working inter-
est" in oil and gas properties to
continue to use losses to offset
Oh:Unary income.
A working interest partner-
ship can be structured like a
limited partnership, but there
Is an important difference:
Limited partners are not liable
for more than their original in-
vestment, but working interest
partners are responsible for
oge
producing well? could leave
partners liable f%re,paying the
But Hirsch says investors
can be protected by insurance
against a major loss. Investors
also will have a "better com-
fort level" if they're dealing
with a company with a good
track record and one that is op-
erating on an all-cash basis.
Fuhrman Nettles, vice presi-
dent for marketing of Robert
A. Stanger & Co., a partnership
investment adviser, says that,
after a few down years, "There
seems to be a building interest
In oil and gas drilling."
An Investment this year
could be attractive because
most of the tax breaks from in-
tangible drilling costs accrue in
the first year, Nettles says.
That allows you to rethice your
income this year, when tax
rates are still high, and reap
any rewards under lower tax
rates in the future.
against which to apply, losses.
Marc Levy of accountants
Ernst & Whinney cautions that
not all limited partnerships are
passive investments. Rental in-
come from real estate is classi-
fied in the new law as passive
(although the limit on write-
offs is modified ? most inves-
tors can deduct $25,000 from
regular income). Income from
a partnership that invested in
financial assets such as stocks
and bonds wouldn't be consid- the money to purchase an as-
ered passive. In between, says set, more partners are brought
Levy, is a griy area. ? in. So instead of the income
? Experts urge that you rule from lease payments going to
out walking away from an in pay off a loan, cash is paid out
vestment on which you 'Still ito investors. Depreciation still
owe money. You'd forfLei creates some paper losses. Re
losses used to reduce your fa
es in previous years -- so you'
owe back taxes. Also, you're I
? gaily liable to the partnership. ated like any other investment
?? weighing risk; security and
- ' ? . ? Neil Budde after-tax return.
? suit: Part of the cash payout
not taxable. 4
Such deals should be evalua
11 Se
? development
08 Equipment leasing
$.84 oil & gas
Source: Robert A. Stanger & Co.

eat estate mvestors lose ground
BY David Landis
USA met_
Warren Angelrs investment
in a real estate tax shelter took
a dive around midnight Aug.
16, when congressional negoti-
ators agreed on details of a
new tax law.
Last? year, Angell invested
$5,000 through a limited part-
' 'nership that owns commercial
buildings, ?
Rather than yielding divi-
dends, the investment was sup-
posed to yield deductions to re-
duce Angell's taxes on income
? from his office supplies busi-
ness in Kansas City, Mo. -
But now those deductions
will be phased out by 1991, and
Angell is left with an invest-
ment that yields nothing. ,
His stockbroker has offered
to buy him out for $3,400. If I
sell today, I've lost 30% on it
?
one year, he says. Bui I may
just have to lick my woiinds on
is thing and ?go on to some--,
thing ?
Angell is not done. An esti- ?
mated $17 billion was invested
in real estate limited partner-
ships in 1985, says Ken Rosen,
manager of real estate re-
search at investment bankers
Salomon Brothel Inc. '
Here's how a real estate lim-
ited partnership works: The
sponsor raises money from in-
vestors to buy properties ?
usually office buildings. Shares
of those properties are allocat-
ed among the investors.
The sponsor, as the general
partner, manages the invest-
ments and is paid a fee by this?
limited partners; The partners
get a proportional share of the
properties' income, it any.
More important, they also get a
share of its deductions. '
Current law allows commer-
cial property to be depreciated
over 19 years. In theory, that
means the owner could take a
deductiod equal to one-nine-
teenth the building's value .
-each year.
But the law also allows for
"accelerated" depreciation, .
meaning an owner can choose'
to take more of the deduction
in the early years of ownership
? almost twice as much. Be-
cause the owners May have put
down as little as 5% or 10% of
the phrthase price (and bor-
rowed the rest), an owner's de-
predation deduction each year
may exceed his investment.
Limited' partnerships gener-
all1i last as long as the big de-
ductions hold out Once they're
exhausted, the properties typi-
cally are sold.
Two provisions of the new
tax law make depreciation less
Low-mcome housing grabs limelight
By William Giese ?you invested $10,000, mg firm Ernst & Whinney,
USA TODAY you would ;educe your tax The reason for the break?
bill by $900 each year for 10 ?' Low-income housing pro-
Tax overhaul includes a years, 'Thal ,000 back on fjects produte low 'rental in-
whopper of a new tax break- your $10,000 investment ? come, and that leaves inves-
for people who invest in low- on top of deductions like de- torftdd. '
Income housing projects. predation and any rental in- Currently, there is no
Starting in 1987, investors come you Might collect s such credit; low-income
in low-income housing con- " "This could_ be one of the hosing investors get other
struction or rehabilitation few tax shelters left under taX,incentives, such as faster
can get up to a 9% tax credit the new tax plan," says depreciation. The credit re-
every year for 10 years. Marc Levy of the account- 111aes those breaks.
lucrative: It will be stretched
our over 311/2 years for most
commercial buildings, and ac-
celerated depreciation for real
estate is ended.
More important, the law
phases out the investors' ability
to use partnership losses to off-
set income from other sources.
That means the end of partner-
ships forted strictly as tax
shelters.
? Many investors, deprived of
their write-offs, "will have to
bite the bullet," says Walter
Danley, former vice president
of Consolidated Capital Equi-
ties Corp. Those who invested
on the installment plan are
contractually bound to keep
making payments into the syn-
dicate without getting any off-
setting benefits.
There are techniques to mit-
igate your losses:
III Losses from tax shelter
partnerships still are useful if
matched against income from
investments in partnerships.
Or, your sponsor could do
that for you. A sponsor who has
both income-and tax shelter-
oriented partnerships can roll
them ,into a 'master limited
partnekship in which you could
invest That way, there would
be some income with which to
balance losses.
M Many investors will be
*considering two unpleasant op-
tions ? defaulting on the pay-
ments due and thus damaging
their credit ratings, or pouring
more tash into what they know
Is a money-losing investment
Approved For Release 2011/01/10 : CIA-RDP89-00066R000400070052-7
By Dale Dlasgow, USA TODAY
New laws
-eve boost
to RUCs
Not all real estate invest-
ments were blitzed by tax
revision. Real estate invest- ,-
ment trusts were unseated.
REITs invest in income-
producing real estate.
Shares are traded like
stocks, at prices generally
ranging from $5 to $50.
There are 136 REITs in
the USA with $17.5 billion in
assets, according to the Na-
tional Association of Real
Estate Investmeid Trusts.
REITs can offer better
? dividends than many stocks
because they distribute
95% of earnings to share-
holders, so they avoid pay-
ing corporate taxes.
, For the five years ending
Dec. 31, 1985, the associa-
tion's index showed a cumu-
lative return (dividends and
,appreciation) of 111.05%,
vs. 90.46% on the Dow
Jones industrial average.
I The new tax law loosens
restrictions on REITs as de-
velopers. It also gives them
a niore direct role in man-
aging property. t
"The REIT has been suf-
fering a serious competitive
disadvantage," says Mark
Decker of the REIT associa-
tion. "We no longer have to
fight to keep our noses
above water."
? David Landis
Approved For Release 2011/01/10: CIA-RDP89-00066R000400070052-7
USA TODAY- MONDAY, OCTOBER 20, 1986 ? 9E'
N'
.?:
OPER
omes lose
?i: By, David Landis
USA TODAY
._. .. ,
,
Devi* Mash had been thinking
about buying a $65,000 second home
1. In the westernPennsylvania remit
, of Seven Springs. But late in the sum-
mer he 'started having second
thoughts because because the new tax law
t
made it less affordable. ,
.
If he had intended to use his hone
' solely 4 a vacation Spot, the new ley
,
would have meant little.
' ' But, rI was looking for an inv
!,.inentas well as some pleasure on i
, 'Says Mash, 43? Vice president for a
.,iniiwtration at George Mason Un-
?versity in Fairfax, Va. ?
; -.A vacation home is just like yoir
'
first home. It kill would ' yield tte
4.
same deductions at a primary rev-
dence , ? mortgage interest air
!Of-0e taxes,, ?
0 new. law wouldwbuld do little
.
curb the basic benefits of home o
etship , .---.?altlinugh the deductiolis
Twould not be worth as much. Thais
because Oil, top marginal tax rale
'11 be reduced from 50% to 38.5%
in, 191s7i 4n0 28% after that, for all
but the highest-income taxpayers.
.,$,/lesfi tayS that didn't bother hill,
:although he and his wife Julie 'a
Computer Atin marketing' '
. ... _ _ ,, , manager,
are in -a tax bracket "in the 40s.? k:
The biggest change in the cost 0
second-home ownership is that .re-
diiced deductions make the decision
.to buY, and rent out a second hornet?
, ,CtitCOSts less appealing '
,The law will ,cut back the depred-
ation deductions for a second hone
that it Used as rental property.,'A
liouSa can I> ' ..
, ,. ., e classified as renal
property if the owner uses it no moire
, than. 14 days a year or 10% of 00
?Arne- it it rented out, 'whichever is
=
more.% i = - ? . ''
??
What's changing:
' Deductibility of real estate
investments.
What it means:
Mani( real estate invest-
ments, including renting
out second homes, will be
less profitable. Rents gen-
erally will increase.
The Mashes wanted a one-bed-
room condo to use a few weekends a
year and otherwise rent out They
figured they could get as much as
$500 to $600 a week during the busy
skiing season.
After the Mashes made a 20%
down payment, the mortgage pay-
ments on a $52,000, 30-year fixed-
rate mortgage at 10% interest would
be $5,476 a year (principal and inter-
est)!
? Under current law, the deprecia-
tion deduction would have reduced
their taxable income by almost
$6,000 in the first year. So the depre-
ciation deduction would have offset
much of the mortgage payments.
The rental income would have cov-
ered the annual costs of utilities, in-
surance, maintenance and condo
fees.
Bottom line: With rental income
their, moneymaking appeal
and tax deductions offsetting annual
costs, the MasheS would have gotten
a vacation home for very little a
year. But that was before the federal
tax overhaul.
The new law lengthens the depre-
ciation schedule to 271/4 years from
the current 19 years and ends accel-
erated depreciation, which allows a
bigger share of the deduction for de-
preciation to be taken during the ear-
ly years of ownership.
Those changes would cut the de-
preciation deduction in the first sev-
en years by more than half ? from
$31,802 under current law to $16,449.
"There's no question that it would
not be as good an investment now,"
Mash says. So the house in Seven
Springs is off.
Although it -would ,not affect the
Mashes, the new tax law atso will cap
the amount of rental property deduc-
tions used to offset non-rental in-
come, including wages, at $25,000 a
year ? and that amount shrinks for
upper-income taxpayers. The
$25,000 deduction starts to be phased
out for taxpayers ? singles or cou-
ples ? with an adjusted gross in-
Come of $100,000; by $150,000, no de-
duction is allowed. (For the purposes
of this rule, adjusted gross income is
calculated without considering cer-
tain other losses, individual retire-
ment account deductions or taxable
Social Security benefits.)
"The thing (tax revision) has done
is create a lot of different things to
think about," says Mash. "For the av-
erage guy, it has a tendency to para-
lyze you.' -
That's why some experts think
home sales will cool off, even though
the house itself ? not tax deductions
is usually a home buyer's primary
Motivation.
One thing tax revision has done for
homeowners is make home equity
-
tie only source of tax-deductible bor-
rowing for consumer purchases.
It eliminates most interest deduc-
, tipns for personal borrowing; but
hOme equity is a loophole.
The new law allows homeowners
to deduct interest on home-secured
loans, no matter how the money is
spent, up to certain limits.
For mortgages taken out before
Aug. 16, 1986 ? the day tilt House-
Senate compromise was arproved
by a conference committee -- inter-
est remains deductible on loans up to
the market value of the home. But
'there's strict limit for new loans: In-
terest may be deducted on loans that
total no more than the original pur-
chase price plus the cost of any
home improvements.
:. . .
. ,..
Real estate: ta g 'dynes Ahead
Tax overhaul promises to turn tions won't be as beneficial. Home dant, will become .less plentiful.
the real estate industry inside out sales will fall slightly, and the me- Landlords will see their costs rise,
by limiting the tax loss deductions dian price will rise less than it did and that means rent increases for
that made real estate such a lucre- this year. the one-third of USA families that
' tiVe tax shelter. , illPartnerships put together to don't own homes. . .
The effects, in the opinion of ex- invest in real estate, if they were II Construction of almost every-
perts: Intended only as tax shelters, will thing except single-family homes
illMortgage interest deductions dry up because the tax write-offs , will decline. .
remain for first and second homes, are restricted. ..
but with tax rates lower the deduc- I Rental housing, now abun- - .? David Landis
, -,
RE
,
0
,
Monthly
tax-free
income
?
,
.
Diver-sified
portfolio ?10070' "A"
. rated or better
,
. ,
Asured liquidity
at the then current
market value
*This current return represents net annual interest income after estimated annual expenses, divided by the public offering price per unit
;on October 7, 1986. Return varies with changes in interest income, the public offering price, and the amount invested. Interest income ,
will remain the same as long as the, portfolio remains intact. A portion of income may be subject to state and local taxes. The Offering
is made only by the Prospectus, and only in those states where Units may be offered legally.
'
-Tax.
.
Call today or
National Trust
formation, including
Read it carefully
en es Es Ise is es
mail the coupon for a Prospectus on
126 containing more complete in- '
all sales charges and expenses.
before you invest or send money.
. , .
Ile is IS se ea es gm us es el ei, ,
.
. USATP-126
emp
.,Securities
Smith Barhey, Harris Upham & Co.
333 West 34th Street 9th Fl.
New York, NY 10001
[phone]
Toll free:
l-800-345-8500, Ext. 45**
NAME
STREET
CITY ?
44
ROME PHONF
ZIP
RUSINTSS
SMITH BARNEY
ordwr SIN: I
*4'21 twurs it day. 7 th*s a
ra III tio ni se ma es es se Es es se es se es os en ele Tio' es es se IS ES es eme es we :es se .11
y b Modersohn
HIT HARD I West Des Moines, Iowa, landlord Jim Theisen, in front of one of
?.'his 30 renlal properties, expcts to lose $150,000 in deductions.
By David Landis
JJ$A- TODAY-
.
ords
nan
The new fax law is going to cost
landlord Jim Theisen of
. W
e
gDes
Moines, Iowa. It' ?ins to .cost his
tenants,
Theisen
, loses about $150,000 in an-
nual deductions from the 30 houses
. ' he owns and rents out He figures his
1
from $325 to 0, will have to go up
? monthly rents, which now range
.i 10% to 20% U Make Op for the loss.
-
How much they actually go up de-
pendson demand, which . is brisk
1
now, Theisen lays. All his houses are
irented. He expects demand to get
even better, 4,the loss of tax deduc-
-' 1 tions dries none* investment in
con-
struction of ental, property.
1 "There's going to be a lot of selling
of real estate,nd you won't see as
'many"Eve
"Eventually, demand.,IS going to be
greater
i
'(rentalallY nits) built," he says.
ter == probably in a year or so. I
4
d?' see rents lncreasine.".. .
?' Under ,current law' rental proper-
? ty that shb*s,a. toss on'paper can pay
1 oft Dedtiction., for depreciation, tax-.
i ulibtiesmortgage interest, maintenance,
and insurance the losses ?cautsntribPe
-I rental income, and ni
I used to *eh, income ,froth wages
and other investments.-- But the new law has some features
'
4 landlords don't like -?-,-- a less gener-
ous depreciation schedule, limits on
I the amount of paper losses at ca
i
i be used at cleduriot% a
ari n capi-
tal
eolimina
601 ufhsa tsolit ecmk propertylow tax014 after more
Chan
.
- - htnt Of ownership.
DepreciationST l- ke. id.O.tittil# for rthe
valueaaneste ', thebretica ly o
,
each year.
,
- current law - allows rental build-
to be depreciated over 19 years:
4.. theory,.::. that: means' the owner
could take deduction equal to on
nineteehtk of' the buil:dines& Value; '
each year: But the law. also allows
"accelerated" depreciation, -' mean-
ng__ _o_ .10er" can take - a' greater
snare efthe deduction in the early
Tears of ownership' = almost twice --
large as one-nineteenth. 1 4 -? ----
'e new ;tax_ , law will make depre-
ciation lest lucrative by ending ac- -
cell:pi-ellen for residential "property -
xi f stretching depreciation over -
pay,
too
271/2 years for rental housing.
Deductions fois rental losses (in-
cluding depreciation) will be limited
to the amount of tental income, plus
another $25,000 for those who active-
ly manage their Properties...That' ex-
tra $25,000 applies only to taxpayers
with adjusted gross incornes of less
than $100,000. It is phased out for
those with adjusted gross incomes
between $100,000 and $150,000.
Also less favorable: taxes on
long-
torm capital gams (profits on the sale
of property owned More than six
months). Currently, 60% of long-
term capital gains is not taxed. Un-
der the new law, 100% of long-term
capital gains is taxed as ordinary in-
come, up to a top rate of 28%.
The National Apartment Associa-
tion, an owners group, predicts rent-
al property valueS will fall 28% over
the next two years.
A lot of that is due to the effect on
real estate limited partnerships that
finance construction of apartment
buildings. Partnership become far
less attractive to invettors under the
new rules.
But the law doesn't come down so
hard on mom and pop landlords who
own just a few rental units and don't
have large incomes to shelter.
Industry experts say rents will
have to make up for the loss of tax
breaks. But that wbn't be the only
thing pressuring rents upward.
As apartments become a less de-
sirable investment, new construction
will drop, tightening the supply. The
National Apartment Association says
multifamily housing starts will drop
to around 385,000 in 1987, compared
with 516,000 units in 1985 and
473,009 in 1986.
The association sees rents rising in
some areas by 22% by 1888. The Na-
tional Association Of Home Builders
predicts a 15%', to 20% rise. The
USA's 69 million renters ? 35% of
all households ? 'pay a median rent
of $356 a month.
Many, areas, particularly in the
Sun Belt; have too many apartments
to let rents rise' much. In those
places, some fear, owners will de-
fault and "give their keys back to the
bank," says Colleen Fisher, govern-
Mental' relations director of the Na-
tional Apartment Association.
,
Statement
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? ? BIM PAYMENT ACTIVITY
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mpivpsy, 00,TOBE9, 20, 198,6,... USA TODAY ,
NI
ANSWERS TO YOUR QUESTIONS ABOUT THE NEW TAX LAW
Will municipal bonds still be tax-free?
- DI., Marion, Ohio
Yes.' Municipal bond theme will be exempt from
regular federal income ta; with an exception: Income
from private-purpose municipal bonds issued after Atig. 7,
?1986 such as those used by states to fund student loan
programs, will be tax-free unless you are required to pay
the alternative minimum tax. In that case, the income will
be liOired in with your other income when calculating the
21%- AMT which is there to keep people from reducing
their taxes to little or nothing using legitimate tax write-offs.
How will employer-sponsored 401(k) retirement
, _
savings plans be affected??
-01', Newark, Calif.
-, ?
The maximum you can put into a 401(k) each year is
reduced. Under current law, the maximum from employer
and employee is $30,000 a year split 'Up any way you
Under- the new law, thn total is still $30,000, but the
employee contribution is limited to $7,000. Because the new
nil. will affect contributions- made beginning in 1987,
financial advisers say it is agood idea to fund your 401(k) as
t heavily as possible before the end, of the. year. Another
important' change: All withdra, wall' (except those Used to
pay certain medical expenses) before' age 591/2 will be
subject to a10% penalty in addition to the regular tax owed.
,
, Five years ago I purchased a tax-deferred annu-
., Will annuities be taxed immediately?
W.T., Clinton, Tenn.
0. Annuities, usually, sold by insurance companies,
arantee you future payments in exchange for an invest-
Ment now. Tam* on annuity income are deferred until you ?
start receiving payments down the-read. People who hold
annuities shouldn't have a problem with the new law. ,
People who have worked for a company five
years or more will they be vested in pension plans?
- Battle Creek, Mich.
They could be. You'll have a better chance at vesting
after five years under the new rules. Workers are vested
when they have worked for an employer long enough to he
guaranteed a pension.' Currently, employers have three
choices -- vesting workers 100% for a full pension after 10
years, vesting them in increasing percentages for partial
pensions between the fifth and 15th years, or vesting in
increasing percentages based on age and years worked.
The new tax law has new vesting rules that take effect Jan.
1,1989. Workers must be fully vested after the fifth year, or
vested in stages between the third and seventh years. So if
you've worked for a company with a pension plan for five
years as of Jan. 1, 1989, you'll be at least partially vested.
Any change in bow federal pensions are taxed?
1- D.C., Olympia, Wash.
Yes. Under current law, retired federal workers do not
Pay tax on pension benefits until they have received in
benefits the amount they paid into the system. Under the
new law, if you retired after July 1, 1986, you'll pay tax on a
portion of every check under a formula based on how much
you contributed.
By Jim Henderlon
USA TODAY
The new tax law promises to
change for the better the way
we make our long-term invest-
ment decisions. We'll be worry-
ing a lot leas about taxes and a
lot more about the economic
soundness of our investments.
"It looks like I'll have to stop
doing what I've been doing and
. start learning about traditional
investments," says Lanny
Specht, 38, of Savage, Md.
For years Specht's invest-
ment strategy has depended on
the favorable tax treatment of
long-term capital gains. He
buys small pieces of real estate
in areas where they're likely to
appreciate in value over a
short time, then sells them af-
ter the long-term capital gains
holding period, currently six
months. Only 40% of a long-
term gain is taxed.
At his current 33% marginal
tax rate, that means he pays
13.2% tax on the profit Under
the new law his profit will be
taxed at 28%. "It pays at
13.2%," he says, "but it's not
worth the risk at 28%." ,
Despite the lost tax breaks
for capital gains, "There will
still be a lot of tax strategies
you can use," says Lewis Walk-
er of financial planners Walker
Cogswell & Co. in Atlanta, Ga,
rega
What's changing -
Pension vesting rules; for-
mula for taxing lump-sum
payments.
What it Min:
Employees will be guaTan-
teed pensions faster; tax
on lump sums may be
higher.
An estimated 15 million
people receive pension
benefits.
The law will drop the top in-
dividual tax rate to 28% from
50% by 1988, but most taxpay-
ers will see little change in
their tax bills. So investing with
an eye toward maximizing
your after-tax returns will be
no less crucial.
"For example, the magic of
tax-deferred compounding will
be just as valid,", Walker says.
'So such things as IRAs and
401(k) retirement plans will be
just as important as ever."
Although the law will reduce
or eliminate deductions for
IRA contributions for many
taxpayers, it doesn't prohibit
putting money, into IRAs. And
regardless of whether the con-
tributions are deducted, earn-
Ings in an IRA will continue to
grow tax-deferred.
? The law also reduces to
$7,000 from $30,000 the maxi-
mum employees can contrib-
ute each year to a company.
sponsored 401(k) retirement
savings plan. The contributions.
still are tax-deductible, and the
money still grows tax-deferred.
There will, however, be
changes in the attractiveness Of
certain types of investments:
]Growth investments, such
as Stocks in young companies
expected to grow in value With-
out producing dividend in-
come, will not be as highly fa-
vored under the new rules.
Reasons: Long-term gains will
be fully taxed. Granted, the
new law's lower tax rates will
lessen the blow, but the bottom
line in most cases is you'll pay
more tax on a long-term gain.
I Income-oriented invest-
ments, such as bank certifi-
cates of deposit or high divi-
dend-paying Stocks, will , be-
come More attractive. Reason:
You'll get to keep more of the
income after taxes thanks to
the new law's lower tax rates.
The most attractive lo
term investments now may be
hybrids that provide both
growth and income, says Rlib-
ert Martel, president of Finan-
cial Planning & Management
in Lexington, Mass. Examples;
Convertible bonds - cor-
porate bonds that pay inte
and can be converted to shares
of common stock, so their val-
stock price.
ue rises with the cornpar
I High dividend-paying
stocks. Favorite industries: ?
ities, telephone and oil.
I Balanced mutual funds,
which always keep portioalof
their portfolios in stocks d
bonds,
El Equity income mut al
funds, which can invest in
stocks or bonds as the find
manager sees fit.
"The key is to use an inv?
ment that will give you a o
way ratchet effect," says Ivlr
tel. "When the stock marke is
rising, the investment will
and when the stock market
falling, the income will kTp
the investment from falling?
Another area of growth /ad
income for long-term inves/rs
is real estate. True, the tax Ifw
will wipe out tax shelter puo-
grams. "But owning a piece of
rental property will beco e
the average guy's tax sheltelr
Walker says.
Under the law, if your d-
justed gross income is less thjin
$100,000, ,you'll be allowed o
use up to $25,000 in losses fron
rental real estate that you oft'
and manage to offset your r
ular income. If your adjust d
gross income is above $100,00),
that $25,000 will be phased ?if
th ;
you will not be able to take a
losses if your adjusted gross
come is above $150,000.
"That $25,000, limit provid
an awful lot of shelter, b
you'd also want the property
have some near-term potenti
for a positive cash Bow so th
you'll be able to get incom
from rents and growth poteni
tial on the appreciation of the
property," Walker says.
For those who don't want to
be landlords, income-oriented
real estate limited partner-i
ships are the best real estate
vestment, says financial plan'
f1
FAMILY PLAN: Lanry and Linda Specht of Savage, Md., with children Joshua, 2, and Keisha, 11, well Rembert Advisors Inc. in
By Mark Angeles, USA TODAY ner Lynn Hopewell of Hope-
are restructuring their long-range investment plans.
Falls Church, Va.
bite
worker who ',eaves a job with a
Cbee* from a Pension plan may
some extra lumps begin-
next year because of the new
f 49-9 million USA workers cov-
eredby pensionsat work, 1 about 9.6
million already have earned the
t to take their money in a lump
if they left the job right .now, be- '
ore retirement; 12.5 millionVorkers:
eligible to receive a lump sw
en they retire.? -
Mets -chFrent rules, a worker
no getsaell a cash Par-lent is ell'
:le to defer all the takes byputting
the Into
an iridiVidualetite-
mnetnrted,icteouthnteaxOr to take the moneyr
es by using 10-year
orward averaging':
e de
e entire lump
You- th
i ar within 60 days of re-
ceivingTaxes are deferred until
y_oe, withdrawals after age.
4 U1/2.!.-. (Withdraw earlier than
- -- 59I/
and Y041taia106penalyplusin
eoheam0untwthdrawn.;
If YOU decide to --e the money
er than salt it away, you're eligi-
or' year forward averaging.
mat hinak
figure what
ra
:?"ble
, be onone-tenth of
;
income) and then 'Mu
e,1 p sum (ignoningtiplyyoli:;joret
oil benefit two ways: By exclud
, _other income, you stay in a low
-
taX bracket; and b, .
,applies to the smaller amount,
that ' using a tax rate
'
you are ere taxedt lower
' a rates. ,
Under current
breaks '? - law,on those tax
are available
you m.6 59,,received when
n4en' ParnenN. - .Csain
dis-
abled 72 or older, become din.
nr l?-ave your job. you
averaging as often as You like use
the course of your career
over
501 an - career I,.
once after 59 - -fara age
chanStarting ge: next' 'Year, 1/2? '
e: 10-year averaging , the rules will
five yearn; --
savings. and that - dr?Ps to
erage Also, You'll bereduces the tax
once and allowed
?
But there only a. to av-
ere is an --g- 59Y
i.; who are go exception: Taxpay-
ersgo, can or Older before t..,,,:, choose-baz either five-year- "au: 1,
year th., ,_.d ratav-
eragingon taxi
Year avuelrellisnag the lump Ses in the
uln
your payment group and tnk
taxurnytoestn,re 'in jahnoYtit-rem5e9'y2but at?r1918? -
1,;.0. specialist with , retirement
would._saeytpiN4bearresrumbEclii,lecipst kyto the re,1. o % ' youpenalty,fl t a stilln
ent be
If you are Mitchell & accounting fin-4
Da_ _ . taking
59y andCo.
ygainti u or Your have .t.h
money this next, considerlein'P this
5eoyneurY tgasits year,saysEliastaijullgin the
,
Your e investment ..y.
tw II. decision'
Year averagi is
rig and an
ension planning
This year; anyone who receives a lump-sum pension -payment can
roll it Over into a tax-deferred IRA or be taxed on the lump sum using
tax-reducing calculation Called 10-year averaging. Starting next
year, people with lump-sum pension payments who were 50 or older
before Jan, 1, 1986, can *roll the money over into an IRA or choose
- between fivn. or 1(1-year averaging.
is ear's opticiti
For a $100,000 pension payment received in 1986, here's a year-by-
- year comparison of how you'd fare rolling it into an IRA earning 9%
_ vs. paying taxes using 10-year averaging and then investing.
-
, IRA
, After-taxi cash from: advantage
t Year - IRA 10-yr; averaging2 (disadvantage)
1986, , $73,080 $85,961 ($12,881)
1987 $79,657 $91,119
1989 $94,641 ? 102,381
1988 $86,826 $96,586 ' , ? ($9,760
($7,740
($11 ;461
1990 $103,158 108,524 ($5,366)
1991 $112,443 115,035 ($2,593)
1992 $122,562 $121,937 $625
1993 $133,593 $129,254 $4,339
1994 $145,616 $137,009 $8,608
1999 $221,268 $183,349 $37,920
1 -- Assumes you withdrew your IRA completely and paid taxes.on the amount at a 28% rate.
2- Assumes taxes are paid on a $100,000 lump-sum payment in 1986 using 10-year averag-
ing and funds then are invested at a 6% after-tax rate of return. '
Source: Peat, Marwick, Mitchell & Co.
ex ear s options
For a $100,000 pension payment received in 1987, here's a year-by-
year comparison of how you'd fare rolling the money into an IRA
earning 9% vs. using 10-year or five-year averaging;
? After-tax cash from
' Year IRA' - 10-yr. averaging2 ? 5-yr. averaging2
$89,791
$95,179
$100,889
$106,943
$113,359
$129,161
$12'7,370 ,
$135,013
$143 11-3
1987 $77,940
1988 $84,955
1989 $92,601
1990 $100,935
1991 $110,019
1992 $119,920
1993 $130,713
1994
1995 155,300
$87,860
$93,132
$98,720.
- $104,643
$110,922
$117,577
$124,632
132,110
140,036
1909 217,766 $180,677 176,792
1 Asurnes'you withdrew your IRA completely and paid taxes on the amount at a 28% rate.
2 Assumes taxes are paid on a $100,000 lump-sum payment in 1987 using 10-year or five-
year averaging; funds then are invested through years end at a 6% after-tax rate of return. .
Source: Peat, Marwick, Mitchell & Co. '
IRA rollover.
Elhsky says you will almost al-
",;ways be better off taking 10-year av-
eraging under current rates than
five-year averaging at the new tax
rates. (An exception is very large
lump sums -say, around $1 million
- says Peat Marwick tax expert
Deborah Walker. Because such large
payments are taxed at this year's top
50% rate even with 10-year averag-
ing, ing, you'd fare better with five-year
averaging.)
When debating an IRA rollover vs.
10-year averaging, it's a question of
when you'll need the money, says
Elinsky. "The easy answer is,, the
'ringer yon can keep it in IRA, th
USA TODAY
? . an e
- - -
better off you are."
Elinsky cites as an example a 60-
year-old worker who changes jobs
this year and receives a lump sum of
$100,000.
Assuming he wouldn't take the
money out for at least six years, an
IRA is better. The worker will end up
with more after-tax cash by letting
the IRA build up untaxed than by us-
ing 10-year averaging.
However, if he expects to need the
cash withjn six years, the worker is
better ortaking 10-year averaging in
1986 and investing the after-tax cash.
So, if the wprker can keep it
socked away for six years or more,
an IRA rollover is better,
Chances are, 'you're already
enjoying the benefits Of making.
money on your money .without
current taxes - in an IRA.
But you know what's about to
happen to IRAs. That's why now,
is the time to learn about a
variable annuity called ICAP. ,
Integrated'S Capital Accumulation
Program.
? 1CAP's
Five Flexible
Portfolio Options'
L U.S. GOvernment Seeuri.
; ties 7 high current income
with minimal credit risk.
2.- Money Market Portfolio --
high current income and stabil-
ity of principal.
3, Fixed-Income Portfolio --
fixed-income securities for
high current income and
preservation of Capital.
4. Growth Portfolio - long-
term capital' appreciation,
5. High-Yield Portfolio- high
current income and capital ap-
preciation.
You can switch among these
portfolios every 30 days during
your accumulation period without
Paying any brokerage commissions
or current taxes on the transfers.
The contract value of ICAP will
vary, depending on the investment
peiformance of the portfolio to
which payments are directed.
Because ICAP is a variable an-
nuity, you benefit from com-
pounded earnings on your
investment. You db not pay any
tax until you make a withdrawal
or receive a distribution. It's a
long-term financial tool that allows
you to accumulate income free of
all current taxes.
Income
Guaranteed For Life
Learn how ICAP gives you an
income for life by calling now. All
it takes to get started is an initial
investment of $5,000, or just $100
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Learn how
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move in
and out of
portfolios
investing in
stocks,
bonds,
money,
market or
U.S.
Government
securities
without
any
charges or,
current
taxes
Approved For Release 2011/01/10: CIA-RDP89-00066R000400070052-7
alance
After/floe
routes for
tax breaks
Now that the plug has
been pulled on most tax
shelters, existing tax-free
and tak-deferred invest-
ments bear a closer look.
Some to consider: I
1 Tax-free municipal
bonds - the last vestige of
tax-free income. Experts
say there arnopportunities
for short-term profits be-
cause the demand will
cause yields to fall, making
yields available today look
even more attractive. That
will push up bond prices.
Residents of states with
state income tax should look
at muni bonds issued in
their state: For residents,'
the interest on instate bonds
is free of state as well as fed-
eral income taxes.
I Tax-deferred annuities
that are offered through in-
surance companies
Annuities generally come
in two forms: guaranteed
and variable.
A guaranteed annuity,
means the insurance, com-
pany guarantees to pay you
a set interest rate. The rate
usually is adjusted every'
one or three yearsi A vari-
able annuity lets you choose
where the money is invest-
ed, usually from a menu of
mutual funds. Because the
investment is in an annuity,
all the earnings are tax-de-
ferred until withdrawn.
But there are early-with-
drawal penalties on annu-
ities. And the IRS will im-,
pose a 10% penalty on earn-
ings taken out before age
591/2. ?
"So before you jump into
an investment just because
the tax laws have changed,",
says financial planner Rob-
ert Martel of Financial
Planning & ,Management
Inc., "find out how much it
will cost you in both fees
and lost Bedbility."
e
Jim Henderson,
wever, there is nci
how m ch yon can invest, unlike
an JRAkAnd you pay ;go 4-Tit-end
sales large. Of course:4arlY
withdrayals may be subje4 to a
surrender charge.
;
?
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t
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I
sA Tow/. 7 MONDAY, OCTOBER 20, 1 96 ? 11 E
old or se
CAPITAL GAINS
ANSWERS TO YOUR QUESTIONS A6OUT THE NEW TAX LAW
What are the individual 'capital gains tax rates
?
for 1987 and 1988? t
??? - ? D.C., Corona, Calif.
?
Starting in 1988, when the new 15% and 28%
ividual tax rates take effect long-term capital gains
profits on investments held more than six months?
will be taxed as ordinary income. In the 1987 transition
Yeatirthe top long-term capitalt gains rate will be 28%,
even though the top 1987 individual rate will be 38.5%.
. If! sella stock this year, to take advantage of
sackca,pital gains tax rates, and buy the stock
back again, de I need to wait 30 days after the sale?
H.N., Memphis, Tenn.
No, If you slim a profit op your stock sale, you can
buy back the sarneshares immediately. However, if you
have a losS, you must wait 30 days before buying back
the shares. That is the rule now and it won't change
under tax overhaul.
Whaare the main changes for business taxes?
? TX., Baltimore, Md.
-
Businesses will pay more ? an additional estimat--
ed $120 billion in taxes during the next five years. Here
are some of those changes: ;
,- The top corporate tax rate will drop from 46% to
34% by 1988. Depreciation write-offs for many types of
equipment will take longer five years instead of
three, for example, for company cars. But there yfill be
bigger depreciation write-offs in the early years. The
maximum 10% investment tax credit for business
equipment purchases is no longer available after Dec.
31, 1985, unless you have a signed contract by that date.
7 Capital gains will be taxed like ordinary corpo-
rate income with a maximum 34% rate; currently, long-
term capital gains are taxed at a maximum 28%.
Dividends received by corporations from their invest-
ments will be 80% excluded from taxation, compared
with the current 85%. The 25% research and develop-
ment credit will be cut to 20%. ?
The three-Martini business lunch will be cut back
to 2.4 martinis. Business meaLS and entertainment, now
fully deductible, would be only 80% deductible.
, .
tfie bill affect Subchapter S corporations?
? J.E.,Tucker, Ga.
? ?
It will make them more 'attractive. A Subchapter S
corporatien is like a partnership; profits are taxed
directly to the owners. No corporate income tax is paid.
To qualify for Subchapter S tax treatment, a company
must have 35 or fewer stockholders. Tax experts predict
many corporatipn.s will switch to Subchapter S status.
'That's because the top 34% corporate tax rates would be
higher than the tbp 28% individual rates after 1987.
By Anne Kates- -
USA TODAY
Sheldon Berger and his wife,
Judy Foltz, sold all their stock in
mid-September and put the pro-
ceeds in a money market ac-
count The reason: Taxes.
The bull market has- been
good to psychologist Berger, 37,
and lawyer Poltz, 38, of Peoria,
Ill. But they bowed out now be-
cause the new tax law will levy
higher capital gains taxes.
Now, you pay taxes on only
40% of long-term capital gains
? gains on investments held
more than six months. So some-
one in the top 50% marginal tax
bracket pays 20%.
The new law erases the dis-
tinction between short- and
long-term capital gains. After
Dec. 31, all capital gains will be
taxed at the same rates as ordi-
nary income, such as wages and
dividends. The top rate will be
28% in the 1987 transition year
(an exception to the top individ-
ual rate of 38.5%) and 28% or
the new law
cuts into your gains
Here's one example of how to evaluate the effect the
-
new tax law will have on long-term capital gains. Say
you bought 100 shares of Owens Corning Fiberglas on
Jan. 2, 1986, at $371/2. It recently traded at $771/1: Bro-'
kerage few. 1.5%. Here, are the after-tax gains this
year for a Ikxpayer at the 38% marginal tax bracket
(middle-income taxpayer) and the 50% marginal tax
bracket (the highest rate); and next year at the 28%
Marginal tax bracket (a new top rate likely tO include
?
middle-income and up:'
-
Marginal .? ? 1886 lses 1987
tax bracket 38% 50% 28%
Sale Price ,$7,750 $7,750 $7,750
Eirokerage fees $173 $173
4, Net sale proceeds $7,577 $7,577 . $7,577
- Purchase price! ,750 ,750 -$3,750
Fret* capital gain 3,827 $3,827 $3,827
Taxable 'amount $1,5301 $1,5301 $3,8271
Tac'' $581 $765 $1,072
- After-lax gain 1 $3,246 $3,062 $2,755
In 1986, only 4Q% ol long-term gain is taxable,. In 1987, all gains are
taxable..
Source: Coopers & Lybrand
e capital loss
dm advantage
13y Anne kateS
USA TODAY
? .11
The new law requires some
pencil work to figure out
*110010, best to take your
capital losses, now ? or wait
until neitt year.,
. Taxpayers Still can reduce
; their tax bite b 'ssesegalYnst wri ?jig cap-
ital lof ow* 1 capital gains.
I
_ Y oases exceed your
Pelpsp you can use the losses to
12Irtinary income, such
el,.)T,sar .11. YOu have more than
0
as $3,000
as wages, by as much
I 7inik) 111 losses, you can carry
over the extra amount to re
,duce income the next year, un-
til Your losses are used up.
Under the old law, yoti copld
write,,, oft 50 cents of ordinary
incoine- for each $1 in long-
'
term losses Short-term losses
; could reduce the income dollar
for dollar.
he new law removes the
distinction between short-term
and ,long-term losses. Each ean
write oft oreltdry income dol-
lar___for dollar. $3,000 year-
1Y-09-sP1.1 h?olcis, , you till
can carrY ovpr umised losses.
When to use losses to help re-
duce income:
J .La you expect to have
enough long-term losses to be
able sinite them off against
ordinary' lhcome, wait until
next Year. You'd need $6,000 in
long-term losses this year to get
the
full $3,000 reduction in
your taxable income; $3,000 in
ioe:le: Would' accomplish the
s
thing nexty e
ar.
"[Use short-term es this
year, to reduce ordinary
ome. Each $1 of short-term
_ By Rick Friedman
HOLDING FAST: Wakefield, Mass., retiree William Clark will hang
On to his investment portfolio despite capital gains increase.,
33% in 1988.
Of course, only the wealthiest
people pay a 20% gains tax
now. The jump to 28% is even
more dramatic for people like
Berger and Foltz. In their 42%
tax bracket, they pay 16.8% On
capital gains (42% of 40%).
The case for selling If you
don't think your stock is goingto
go much higher, sell now to lock
in tax savings, some experts ad-
vise. That's what Berger and
Foltz did. A combined income
of about $50,000, plus $47,791 in
capital gains, puts them in the
42% marginal tax bracket for -
joint filers. So they will pay
$8,029 in taxes on capital gains
this year. A 28% rate next year
would raise the tax to $13,381.
For many investors, "The dif-
ference in tax is so significant, it
makes economic sense" to sell,
sayS" Coopers., & Lybrand ac-
countant Pamela- Pecarich.
Berger and Foltz had to
weigh the tax advantage of sell-
ing this year against the chance
of missing out on-pother stock
surge next year.
"Even if the market doubled
(our profits), we'd come out
about even if we held onto the
stocks," Berger says.
Because Berger sold all his
stocks at once, he was able td
negotiate a 20% discount on
cOmmissions. He paid $3,000 on
a $209,000 sale, a 1.4% rate.
' The case for holding If you
want your stocks for the long-
term, it makes sense to hold
What's
Favorable treatmen for
long-term capital gains
only 40% of gains taxed,
so top rate for someone in
50% marginal tax bracket
is 20%. .
What it 'means:
Long-term capital gains
will be taxed as ordinary
income. Rates: 15%; a%
or 33%.
47 million of us own stock.
them rather than selling them
to take advantage of lower tax-
es and then buying them back.
Reason: If you pay taxes and
commissions from proceeds of
the stock sale, you have that
much less to reinvest, so you
lose some earning power.
Most experts advise the ap-
proach taken by Wakefield,
Mass., retiree William Clark.
Because Clark is in the 30%
marginal tax bracket, his capi-
tal gains tax rate will more than
double, to 28% from 12%.
After reviewing his portfolio,
Clark sold shares in only one
mutual fund, an international
fund that ills ests in foreign
, stocks. The fund has prospered
*as the dollar has fallen, but
Clark thinks the dollar is near
its low ? enough to prompt him
to sell. Tax changes make it
"timely to sell this year."
Clark thinks his other funds
still are good long-term invest-
ments. Even if he sold the ones
he likes and bought them right
back, ."It be a wash. rd
pay lower taxes, but I'd have
less income because I'd have
less invested after the sale."
Some rules of thumb:
El James Conley, a partner at
accounting firm Arthur Young
& Co., says if you sell your stock
and then buy it back this year,
the new stock would have to
rise 56% before you'd make up
for taxes paid and lost earnings.
I But don't forget commis-
sions, says Pecarich. If commis-
sions equal less than 15% of the
gain, that type of strategy may
be worthwhile.
I Short-term gains should be
left alone. Because short-term
gains are taxed at the sanie rate
as ordinary income, wait for
lower tax rates ? 38.5% next
year and 28% or 33% in 1988.
no in ho 1r be successis 0
in ho to ?Yoectitisquitan
e eo e horely,on heii
tati e h. ye /yiad a s,trat
o pal to .eafeaustOm
a r ng of fina , cia!aItrna
Nit a pro, ssi a is a
r
tosses erases $1, in income,
remember, and that $1 de-
duction is worth more this
year when income is faked
at higher rates. Next year's
lower tax rates will make
your losses, less valuable.
When to use losses to re-
duce capital gains:
I Take capital losses this
year if you have short-term
capital gains. Short-term
gains, taxed at the same
rate, as ordinary income,
carry a Op 50% rate this
year, 38.5% .next year ant
28% or 33% in 1988 and
thereafter. So each dollar
you shave, off your short-
term gain saves you up to 50
cents in taxes this year, 38.5
`cents next year and only 33
cents thereafter. ,
1 If you expect capital
gains next year, defer capi-
tal losses that aren't needed
to offset short-term gains
this year. Only 40% of long-
term 'capital gains are taxed
now, so if you're in the 50%
tax bracket, the most tax
you'd pay on long-term capi-
tal gains this Year would be
20%. That means you shave
a maximum of 20 cents per
$1 from your capital gains
tax bill by deducting loses*
from. long-term gains this
year. You'd save even less
in a lower tax bracket
But next year, when long-
term gains are taxed the
same as ordinary income,
you could shave up to 28
cents on the dollar off your
'capital gains tax bill; in 1988
and thereafter, you'd save
up to 33 cents
Approved For Release 201 1/01/10 : CIA-IRDP89-00066R000400070052-7
Approved For Release 2011/01/10: CIA-RDP89-00066R000400070052-7
USA TODAY ? MONDAY, OCTOBER 20, 1986 13E
},Pk, Jesus Sa
I U ik.ToDA
The new tak.system will
make ea bit more corn-
plicated
,
Tdiiy. of the
40 million people who
'have individual tetirel&
?top =
oun ,
Under the Octtax Ociel
07".; C0114
tax-40001e'
contributlon ofup t
year .tO an
and a.?.eon-Warking spouse-
could chip t#,S.Pk The
earninwouldni
et Until: withdrawn. .
rules remain the
'same or thosenot cOv-
:0,60 bit7COffippny pension
'PIMA But new IRA plea:
,which., take effect in 1987
for teXeS 00- April 15,
? rest ofUs.;!
llfyouoryourspouse
are.eligibl,e to be le :0 pet
- work, the pen-
sion plan
could be ,
re-
duced? eliminated for
both of you.
Couple With an adjust,
.; grow_ income., under .
_40,000 still could deduct
the $2,000- for each Wage.
-
earner and $250 for a non-
working spouse. - But for
What's chatthig:
Deductibility of IRAs.
What it meats:
W:orkers! IRA deductions
will be limited if they are
covered by retirement
plans at work and have
m re than a certain
income. -
In 1984, taxpayers
claimed IRA deduc-
tiona on 15.2 ,
million returna,
oOPP-raS with incomes be-
tween $40,000,. and
$50,000, the deduction is
phased out. Couples with
incomes above $50,000
lose te deduction.
A ?ouple can't beat the
system by filing separate-
ly. The phaseout conies
betWien zero and $10,000
for Married people who
are filing separately; -
A single taxpayer with a
company pension won't
lose' the $2,000 deduction
if adjusted gross income is
below $25,000, but it is
phased out between
$25,000 and $35,000.
I If you make non-de-
ductible IRA contribu-
tions, withdrawals will be
tricky. Deductible contri-
butions must be kept in
separate accounts from
contributions that weren't
tax-deductible, When
making a withdrawal,
you'll have to determine.
what percentage of your
IRA balance was funded
with deductible contribu-
tions as well as with non-
deductible contributions.
Say 10% of all your IRA
money was non-deduct-
ible. The rest consists of
earnin. and deductible
contributions. You'll be
taxed on 90% of the
amount withdrawn ?
even if, it is from an IRA
funded with non-dedUct-
ible, after-tax dollars.
The new code hits
only deductibility of IRA
contributions ? earnings
remain untaxed until you
start making withdrawals
at retirement.
The more your life
changes, the more
you need someone
you can trust.
You have a child.. . get promoted... move
into a home.. :retire.
Each time your life changes, your financial
needs change. That's why Sears has gathered
the financial help youneed under one roof in
the Sears Financial Network Centers:
Dean Witter is one of the nation's leading
investment firms. Colelwell Banker Real Estate
is the largest full service real estate company in
the country. And Allstate Insurance has been
partners with Sears for over k) years.
And now you can get the help you need at
your convenience. Sears Financial Network
Centers are located in most larger Sears stores
and are open every hour
Sears is open, including
. evenings and weekends.
Member company services
are also available at individual company
locations right in your neighborhood.t Why
not stop in and get acquainted?'
The Sears Financial Network.
Trust us to make it work for you.
will cost Kenton and Mar-
-
ne Lynne Of Rochester,
their $4 0004-year
def10,44sa,'
at's because he has a .-
nmPank Pension Plan,.;
and MO make too much.
fUolleY to be allowed to
e the deduction.' =,
Kenton, 31, a corn-
er program-
er, and Marlene, 33, a
?Orkle-Ok technician, will
TOgit at joining Tax-de4nct-,:?:
'bie'Savings plans at Work.
But the changes in IRA
edlictibility? don't affect
helicopter pilot Philip
? 414srtfootte,, 48, and his
Cynthia; 38, a nurse.
_MaSiicottes,_ who live
in Bend, Ore.-, are not cow.
'Tered-hy 4 company Pea-:-
'skiff plan, so they can con-
nue c n
'hutdeiii as they've been --:
ng since 1982-. -
ad. they did not
aWeY IRAs," says
. :
' "Ira-, the Only, way -
le people can get a ret
pent Plan for them,:-
..
? tennig of individual
retirement account rules
you lose, all or
si.04e IRA deduc--
?aNT investment
xperts say IRAs will con-
'nue to he attractive.
Interest ahcr earnings
-Ow' tax-free until
start making with-
I will definitely fecom7,
n'innd IRAs to my clients,
since 'earnings - remain
,sheltered from tax," says
KoVecic* presi-
dent O? filln441 a 14 Asp1:11:
411 Hickory
IlL 4ilts clients- find
? an easy way
to budget for
their _retirement.;
Experts urge investors
to put as trinoh cash. as
'they
8 can ;In IRAs
during
last v be-
ore
o0"-r-e:strictio4s ?het:au?c-
tfaoka Contribu-
tionseffecteffect
r
: 1986' will be .,.
ac-
ceptableupto the AP--
SEARS
FINANCIAL
NETWORK
ALLSTATE
DEIN %ATTER REYNOLDS
COLDINELE BANKER
SEARS SAVINGS SANK.
Sears, Roebuck *and Co., 1986
Allstate Insurance Company, Home Office: Northbrook, Illinois
tNot. all member company services available in every city.
15, 1987, tax deadline,
says Albert Ellentuck, na-
tional tax partner at ac-
countants Laventhol &
Horwath in Washington,
DC
Where people invest
their IRA money probably
won't change. "Invest-
ment strategy will still
come down to the risk
people are willing to take
with their retirement
money," says George Bar-
bee, executive director of
Consumer Financial Insti-
tine in Newton, Mass., a
division of accounting
firm Price Waterhouse.
High-income investors
might adjust their IRA
portfolios because of the
less favorable tax treat-
inent for capital gains.
"People who will be af-
fected by the higher capi-
tal gains tax for non-shel-
tered investments might
want to use IRAs to trade
stocks and mutual funds,"
suggests Karen Imhoff,
editor of The IRA Report-
er; an industry newsletter
in Cleveland.
on: Go for gold
?Jamea Cox
SA TODAY
When Congress made individual re-
Orel-tient accounts an option for all USA
ixinrk=o4: irfi.982; it bumped collectibles
from the list of assets in Which you could
AO* 0-pr IRA money.
The new telt plan won't open the IRA
oor to most C011eCtijAeS -- art, stamps or
- for example. But as of Ian. 1, you
an deposit new U.S,-minted gold and sil-
'v'er coins in your IRA.
,."-Leta of people believe in wild," says