THE NEW TAX LAW: WHAT IT MEANS TO YOU : PERSONAL TAXES

Tax rates Today’s 14-15 brackets, with a maximum 50% rate, telescoped to five brackets (maximum rate: 38.5%) in 1987 and two brackets ‘rates of 15% and 28%) starting in 1988. For some high-income taxpayers, there will still be an effective rate of 33% as the value of the 15% bracket and the personal exemption are phased out.

Personal Exemption Increased from $1,080 now to $1,900 in 1987, $1,950 in 1988 and $2,000 in 1989; indexed to inflation thereafter.

Standard deduction Changed from $3,670 to $3,000 in 1987 and $5,000 in 1988 for couples, from $2,480 to $1,800 and then $3,000 for singles, $2480 to $2,500 and then $4,400 for heads of household; indexed.

Itemized deductions

Medical expenses: Deductible in excess of 7.5% of adjusted gross income instead of 5%.

State and local taxes: Sales tax no longer deductible: income and property taxes still deductible.

Mortage interest: Deductible for first and second homes only.

Consumer interest: Deduction phased out over four years. Interest on loans against home equity still deductible within limits.

Charitable contributions: Deductible only for those who itemize deductions.

Miscellaneous Deductions: Nearly all expenses (including employee business expenses) deductible only to the extent they exceed 2% of adjusted gross income.

Retirement savings Individual retirement accounts: High-income taxpayers covered by pension plans at work may no longer deduct the annual contribution of up to $2,000, but earnings continue to be tax-deferred for all taxpayers.

401(k) plans: $7,000 limit to employee contributions to these employer-based plans.

Tax breaks for elderly, blind Double personal exemption replaced by an extra $600 for the standard deduction of each eligible married person and $750 for singles.

Capital gains Taxed as ordinary income; 60% exclusion repealed.

Two-earner deductionRepealed.

Dividend income $100 exclusion ($200 for couples) repealed.

Earned-income credit Maximum increased from $550 to $800; maximum income with which a taxpayer qualifies increased for $11,000 to $17,000.

Tax shelters “Paper” losses no longer may be used to offset other taxable income, except for oil and gas partnerships.

BUSINESS TAXES Tax rates Top rate lowered from 46% to 40% in 1987 and 34% in 1988.

Investment tax credit Repealed as of last Jan. 1

Depreciation of investments About the same as current law for most investments; real estate write-offs much less generous.

Capital gains Taxed at ordinary income; 28% top rate repealed.