Just when you think you've gotten used to the rules of taxes, capital gains, retirement and bankruptcy, they change.

        Most — but not all — of the changes are associated with the $1.35 trillion tax-cut package enacted recently by Congress and signed by President Bush. But the “sunset” provision could make it more confusing. Unless Congress renews the provisions, these changes expire after 2010, sending Americans back to today's system.

        “Once you start getting used to these rules, they can pull the plug on it . . . in 2011,” said Shane Starkey, tax attorney at Thompson Hine LLC.        

Tax package

        Here's a brief summary of the changes:

        • Income tax cuts. In the cornerstone of President Bush's reforms, virtually every taxpayer will get a little something. Marginal rates across the board will fall, while key deductions and credits — such as child tax credits and standard deductions for married people — will grow. Phaseouts for itemized deductions above certain income limits also were repealed.

        • Greater education incentives. Funding limits on Education IRAs, deduction limits for college expenses, and employer-provided education assistance are all increased. Qualified distributions from state-sponsored college savings programs (Section 529 plans) also will be free from federal income tax.

        • Estate-tax cuts. Rates will fall and exclusions will increase until the tax is repealed altogether in 2010.

        • Changes in establishing basis for capital gains. Heirs now establish their own tax basis when they inherit appreciated stock instead of assuming the deceased's typically much-lower tax basis — minimizing capital-gains taxes. After the estate tax is repealed, $1.3 million can have a stepped-up basis. Assets over that take their original basis with them.

        • Greater retirement savings opportunities. Annual funding limits will gradually rise for IRAs from $2,000 to $5,000 by 2008 and 401(k)s from $10,500 to $15,000 by 2006. People over 50 will be able to save more than those limits, $500 to $1,000 more in IRAs and $1,000 to $5,000 more in 401(k)s.        

Non-tax changes

        Way before Congress acted on the tax laws, the Treasury Department changed its interpretation of an existing law affecting the way people take distributions from IRAs, 401(k)s or other tax-favored retirement plans.

        The change in the minimum distribution rules does away with key deadlines and creates simplified distribution tables. People who made mistakes in paperwork or changed their minds about how to take the distributions get a fresh start.        

Further changes?

        More changes are suggested — but not likely — given the new congressional political balance and increasing budget constraints.

        Bankruptcy reform legislation, making it more difficult for individuals to erase debts, has stalled in the Senate, while proposals to cut capital gains tax rates haven't moved much at all.

        Amy Higgins writes about personal finance for the Enquirer. You can reach her at 768-8373; ahiggins@enquirer.com; or Your Money, The Cincinnati Enquirer, 312 Elm St., Cincinnati 45202.

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