Newspaper article THE JOURNAL RECORD

Tax Reform Leaves Opening for Seeking Minimum Taxes/home Equity Loans Boom

Newspaper article THE JOURNAL RECORD

Tax Reform Leaves Opening for Seeking Minimum Taxes/home Equity Loans Boom

Article excerpt

NEW YORK - Never underestimate the impact of tax policy.

A few years ago Americans stampeded into Individual Retirement Accounts with such a commotion they stole the initials IRA from the Irish Republican Army, which had been making a big noise at the time.

Under an IRA, as originally legislated, a taxpayer not only received a tax deduction for the amount contributed to an IRA, but the money so invested was allowed to earn interest without incurring taxes.

The notion prevalent at the time was that IRAs would help provide for the retirement of those who held them, and thus relieve pressure on the overburdened Social Security system.

Holders of IRAs were praised for having assumed at least some responsbility for their own futures, an action that fitted neatly into President Reagan's philosophy of shrinking government involvement in private matters.

Then Congress decided last year that IRAs were costing the government too much tax revenue, and that many of those taking advantage of the tax reductions were fairly well-to-do and capable of paying for the future without help.

As a result, IRAs lost an important advantange: While funds in IRAs would continue to accumulate tax-free until removed as the individual neared retirement - minimum age 59 1/2 - the tax deduction on contributions was removed.

This action was taken as part of an attempt to lower basic taxes, and make them simpler and fairer in the process, by eliminating deductions that were being exploited or that were said to unduly favor some people.

But in the process, the framers of the Tax Reform Act of 1986 left a huge opening for those seeking to keep their taxes to a minimum. With some limitations, interest on money borrowed on a house would remain deductable.

This was a big exception to the rule, because interest on bank-card loans and other forms of consumer debt would lose their deductability. …

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