As you probably know, the President signed the Tax Increase Prevention and Reconciliation Act into law on May 17, 2006. This new law carries important tax changes for individuals. Most apply this year but others kick in several years down the road, and while most changes (such as those affecting AMT and capital gains) are tax-savers, others (such as the revised "kiddie tax" rules) could negatively impact you and your family. Here's an overview of what you need to know right now about this new law.

AMT relief. In general terms, to find out if you owe alternative minimum tax (AMT), you start with regular taxable income, modify it with various adjustments and preferences (such as addbacks for property and income tax deductions and dependency exemptions), and then subtract an exemption amount (which phases out at higher levels of income). The result is subject to an AMT tax rate of 26% or 28%. You pay the AMT only if it exceeds your regular tax bill. Although it was originally enacted to make sure that wealthy Americans did not escape paying taxes, the AMT has wound up ensnaring many middle-income taxpayers. One reason is that many of the tax figures (such as the tax brackets, standard deductions, and personal exemptions) used to arrive at your regular tax bill are adjusted for inflation, but the tax figures used to arrive at the AMT are not. For 2006 only, the new law provides some relief. It increases the maximum AMT exemption amount over its 2005 level by $4,550 for married taxpayers filing joint returns, and by $2,250 for unmarried individuals. However, after 2006, the maximum AMT exemption amount will drop precipitously to where it was in the year 2000 unless Congress provides another fix.

Another provision in the new law provides AMT relief for those individuals claiming certain "nonrefundable" personal tax credits (such as the credit for dependent care and the Scholarship and Lifetime Learning credits). For 2006, these credits may offset an individual's regular tax and AMT. After 2006, unless Congress acts, these credits will be allowed only to the extent that an individual has regular income tax liability in excess of the tentative minimum tax, which has the effect of disallowing these credits against AMT.

Investor tax breaks extended. An individual's long-term capital gain generally isn't taxed at a rate higher than 15%. It may be taxed at just 5% (0% for tax years beginning after 2007) if the gain would have been taxed at 10% or 15% if it were ordinary income instead of long-term capital gain. Most dividends from domestic corporations (and certain qualifying foreign corporations) also qualify for the same favorable tax treatment as long-term capital gain. These favorable tax rates were set to expire at the end of 2008, but the new law extends them through 2010.

Income limit on Roth IRA conversions eliminated, beginning in 2010. Under the rules that apply currently, only individuals with $100,000 or less in modified adjusted gross income can convert a regular IRA into a Roth IRA. A taxpayer making the conversion generally must pay tax on money he takes out of his regular IRA, but once it's in his Roth IRA, he won't pay tax on the withdrawal of that money or the money it earns (assuming a few relatively simple requirements are met). Generally speaking, Roth conversions appeal to taxpayers who either think their tax rate will go up in retirement, or believe that the value of their account will rise significantly, and thus are willing to make an upfront tax payment in order to reap large tax savings in later years.

Under the new law, beginning in 2010, taxpayers will be able to convert a regular IRA into a Roth IRA regardless of how high their modified adjusted gross income is. What's more, those who convert in 2010 will be able to spread the income and resulting tax payments on the converted funds over two years-2011 and 2012.

Kiddie tax age limit raised from under 14 to under 18. The kiddie tax curtails the ability of parents to significantly lower their family's tax bill by transferring investment assets to low-taxed minor children. Under the new law, for 2006, a child under age 18 (raised by the new law from under age 14) pays tax at his or her parent's highest marginal rate on the child's unearned (investment) income in excess of $1,700. The new law specifies, however, that the kiddie tax does not apply to a child who is married and files a joint return for the tax year. It also adds an exception to the kiddie tax for distributions from certain qualified disability trusts. These changes apply after 2005.