Tax Reform Act of 1976

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Tax Reform Act of 1976 Federal legislation that tightened several provisions and benefits relating to taxation, beginning in the 1976 tax year. Among its major provisions:

1. Extended the long-term Capital Gains holding period from six months to nine months in 1977 and to 12 months beginning in 1978.

2. Instituted new rules on determining the Tax Basis of inherited property.

3. Set a new minimum capital gains tax on the sale of a house.

4. Established, for homeowners over age 65, a once-in-a-lifetime exclusion of up to $35,000 in capital gains tax on the sale of a principal residence. (This amount was later raised by other tax bills, until it stood at $125,000 in the mid-1980s.)

5. Increased the maximum net Capital Loss deduction from ordinary income on a personal income tax return to $3,000 beginning in 1978.

6. Extended the period of tax loss carryforward from five years to seven; gave companies the option of carrying losses forward without having first to carry them back; and prohibited acquiring corporations from taking advantage of an acquired firm's loss carryovers unless it gave the acquired firm's stockholders continuing ownership in the combined company.

7. Limited deductions for home-office expenses to cases where homes are used as principal business locations, or for meeting with clients.

8. Disallowed owners who rent their vacation homes from reporting losses, deducting maintenance costs or taking depreciation on those rentals unless the owners themselves used the homes less than two weeks per year, or less than 10% of total rental time.

9. Instituted a deduction up to $3,000 for "indirect" moving costs if a new job is more than 35 miles from a previous job.

10. Established a child-care tax credit of up to $400 for one child and up to $800 for more than one child.

11. Allowed a divorced parent, if contributing at least $1200 in child support, to claim a child as a dependent deduction.

12. Instituted a spousal Individual Retirement Account, which allowed nonworking spouses to contribute up to $250.

13. Disallowed losses on tax shelters financed through loans made without any obligation to pay, or where taxpayer's risk is limited by a form of guarantee, except for real estate investments.

14. Treated the exercise of a Stock Option as ordinary income rather than as a Capital Gain.