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MONEY TALK / Debra Whitefield

Many Key Tax Breaks Will Survive

July 31, 1986|DEBRA WHITEFIELD

QUESTION: One thing I haven't read about in all the coverage of tax reform is what will happen to the $125,000 exclusion on the sale of a home. My husband and I are both in our 60s and if that deduction is going to be killed, we want to put our house up for sale immediately.--L. O.

ANSWER: Take your time. That tax break is one of several that the tax reform architects left intact.

Taxpayers who are at least 55 years of age will continue to be eligible for the once-in-a-lifetime exclusion of federal income taxes on up to $125,000 of the profit from the sale of their homes regardless of how the final tax reform bill shapes up.

In the same vein, taxpayers of any age who sell their home and buy another that costs at least as much will still be able to defer the payment of taxes on any profit that they receive in the transaction.

The rules that currently apply in such transactions--such as the requirement that the profits be reinvested in the purchase of a new home within two years of the sale--will remain intact.

So, too, the popular deduction for mortgage interest payments, both on principal residences and vacation homes, has escaped the knives of tax reformers.

Another popular tax break that hasn't had much publicity but that also will remain untouched is the credit for up to 30% of qualified child-care costs. Nor will deductions for losses from such catastrophes as earthquakes and fires be eliminated. Life insurance proceeds and the cash value that builds up on certain types of life insurance will continue to be tax exempt as well. Each taxpayer will still be able to give up to $10,000 to someone without incurring a gift tax. Married couples won't have to worry about the surviving spouse paying gift or estate taxes on the property transferred to them upon the other spouse's death.

And the interest on so-called public purpose municipal bonds would continue to be tax exempt. These are bonds issued to raise money for such things as public schools and water filtering plants.

On the down side, consumers should be aware that tax reform likely will mean more paper work in at least one circumstance, rather than less.

The Senate version of the reform bill requires employees to file a new W-4 form for purposes of withholding taxes from paychecks no later than Jan. 1, 1988. That requirement may or may not survive the conference committee, which is currently trying to work out a compromise between the Senate and House bills.

Debra Whitefield cannot answer mail individually but will respond in this column to financial questions of general interest. Do not telephone. Write to Money Talk, Los Angeles Times, 780 Third Ave., Suite 3801, New York, N.Y. 10017.

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