How the new tax law affects you
Several key tax provisions have now been signed into law by President Bush. How much you'll save depends on your income.
By Jeanne Sahadi, CNNMoney.com senior writer

NEW YORK (CNNMoney.com) - President Bush on Wednesday afternoon signed into law another landmark piece of tax legislation.

One provision in the bill -- AMT relief -- has broad bipartisan support. But others have generated plenty of fights across the aisle.

HOW MUCH WILL YOU SAVE?
Here's an estimate of the average savings that the tax reconciliation bill will yield for different income groups.
Income groupSavesReduces tax liability by:
$20K-$30K$100.4%
$50K-$75K$1121.0%
$75K-$100K$4062.3%
$100K-$200K$1,3954.4%
$200K-$500K$4,5275.9%
Over $1 million$42,7664.5%
Source: Urban-Brookings Tax Policy Center
AMT relief
Provision and impact
Boost exemption levels for joint filers to $62,550, from $58,000
Shield 15 million taxpayers from AMT in 2006

Proponents of the new law say that the provisions will benefit most taxpayers, not only by reducing their taxes but by spurring economic growth, which can generate higher tax receipts as income and investments grow. At a signing ceremony, Bush called the new law, " a victory for the American taxpayers and a lift for the economy."

Opponents of the law say those who stand to gain the most from it are high-income taxpayers, that the tie between the provisions and economic growth is tenuous and that some of the bill's provisions will add to the country's long-term deficit.

Whichever side you take, it pays to know what the new law will mean to you. Here is a summary of how some of the reconciliation bill's provisions will affect your wallet:

Extend reduced capital gains and dividend rates

The new tax law extends for two years the 15 percent rate on long-term capital gains and dividends. For low-income taxpayers, that rate will be 0 percent.

Currently scheduled to expire at the end of 2008, the reduced rates will run through 2010. After 2010, the rates are scheduled to revert to 20 percent for long-term capital gains - 10 percent for those in the lowest tax bracket - and one's top income tax rate for dividends.

The JCT estimates the provision will cost $50.8 billion over 10 years.

Critics say the reduced rates primarily benefit high-income taxpayers since exposure to stocks for middle- and upper-middle income taxpayers tends to be through tax-deferred vehicles like 401(k)s.

The Urban-Brookings Tax Policy Center, for instance, estimates that a taxpayer with an income between $50,000 and $75,000 would save an average of $58 on his tax bill in 2009, or about 0.4 percent of what his total tax liability would have been if the rates weren't extended. But only 23 percent of that income group even have taxable investments -- the average tax cut they'd receive is $255, or about 2 percent of their tax liability.

By contrast, a taxpayer with income of $1 million or more would save an average of $32,111, or about 3.3 percent of what his tax liability would have been. If you just count those with taxable investments in that income group - 81 percent - the average tax cut they'd receive is $39,448, or about 4 percent of their tax liability.

For those with sizeable dividends in a taxable portfolio, the savings also can be impressive. Say you have a $300,000 portfolio of stocks and mutual funds, with an average dividend yield of 1.8 percent. Your annual dividends would total $5,400 and you'd owe $810 in income tax on them, based on a 15 percent rate. If the reduced rate weren't extended and you're in the 28 percent tax bracket, you could owe up to $702 more depending on your adjusted gross income for a total tax hit of $1,512.

Provide greater AMT relief

The new tax law increases for tax year 2006 the AMT income exemption levels that were in effect for 2005. The new exemption levels are $42,500 for single filers, up from $40,450, and $62,550 for joint filers, up from $58,000.

In addition, when calculating whether they're subject to AMT, taxpayers will be allowed to use all nonrefundable personal credits to offset AMT liability. Normally, these credits often end up being disallowed under AMT.

The JCT estimates that the provision will prevent an additional 15 million taxpayers from falling prey to the AMT in 2006.

Tax Policy Center estimates show the majority would come from households with income between $100,000 and $500,000, and their savings would range from $1,074 to $2,838.

The estimated cost of the provision over 10 years is $33.9 billion.

The AMT imposes a higher bill on taxpayers than the regular tax code.

The tax, originally intended for the wealthy, now threatens to catch tens of millions of middle-class taxpayers unless lawmakers continue to increase the AMT income exemption levels, since the original levels were never adjusted for inflation.

Increase Roth IRA eligibility

In order to keep the final reconciliation package under its $70 billion spending limit, lawmakers needed to add revenue raisers into the bill.

The most controversial is one allowing all taxpayers, not just those with modified adjusted gross income of $100,000 or less, to convert their traditional IRAs to Roth IRAs starting in 2010.

Proponents of the measure say it will raise revenue since IRA holders must pay taxes on their accounts when they make the conversion. By JCT estimates put out last week, the conversions will yield an additional $6.4 billion in revenue between now and 2015.

But critics say that long-term the provision will be a revenue loser for two reasons: 1) the gains earned in those accounts would grow tax free, while in a traditional IRA they would have been taxed as income upon withdrawal; and 2) those making the conversion will be advised to pay their Roth taxes upfront using money from their taxable savings, the interest and dividends from which are taxed every year. By reducing their taxable savings, they also will be reducing Uncle Sam's take in future years.

Conversions won't make sense for all upper-income taxpayers. Much depends on your current income tax rate, your anticipated income tax rate in retirement and whether you can pay the up-front taxes on the conversion with money other than that earmarked for the Roth.

"Generally, if outside funds are available to pay taxes triggered by the rollover, conversion will make sense unless the taxpayer expects to be in a substantially lower tax bracket at retirement. When conversion makes sense, the long-term tax savings can be very dramatic," said Craig Janes, a partner at Deloitte Tax LLP, in a statement.

For instance, Deloitte estimates that a taxpayer with a $200,000 traditional IRA could generate an additional $170,000 in retirement income by making the conversion, if he is in the 33 percent tax bracket but expects to be in the 25 percent tax bracket when he retires. It also assumes he makes the conversion in 2010, retires in 2025 and gets an average annual return of 8 percent on his investments.

If, however, his income tax rate in retirement were 15 percent, the conversion could cost him $102,000 in retirement income.

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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.