The 2006 Tax Legislation passed last week by the U.S. Senate and House of Representatives extends the age for the "kiddie tax" until the child reaches age 18. This change is effective in 2006. Under existing law, unearned income (interest, dividends, rent, capital gain, etc.) received by a child under age 14 is taxed at the child's parent's highest marginal tax rate. The new legislation raises that age to assess the higher rate on unearned income of children under age 18. Correspondingly, if a parent was planning to transfer appreciated property to a 15 year-old child and sell it with no capital gain tax, that will not work this year, and the capital gain will be taxed as though the parent sold the property.
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