In one of its final acts before adjourning for
2006, Congress passed the Tax Relief and Health
Care Act of 2006. President Bush signed the bill
into law on December 20, 2006. The law
retroactively reinstates a number of tax breaks
that had expired at the end of 2005, making them
effective for 2006 and 2007. Here is a brief
overview of what was extended.
* The itemized deduction for state and local
sales tax was reinstated for 2006 and 2007. This
is a boon for taxpayers in states without a state
income tax, but taxpayers who pay both state sales
and income taxes can deduct whichever is higher.
* Middle-income taxpayers can claim a deduction
for up to $4,000 of qualifying higher education
expenses for 2006 and 2007. This is an
above-the-line deduction so you don’t need to
itemize to claim it. However, income limits apply.
* Teachers can claim a deduction for classroom
supplies that they pay for out of their own
pocket. This is also an above-the-line deduction,
with a limit of $250
* The law also extends a number of business tax
credits and deductions, including the research
credit, the work opportunity and welfare-to-work
credits, and the 15-year recovery period for
certain leasehold and restaurant improvements.
* The Energy Tax Incentives Act of 2005
provided several tax credits and deductions
intended to promote energy conservation. Though
these tax breaks generally were not scheduled to
expire until the end of 2007, the new law further
extended certain ones through 2008.
The new law makes other miscellaneous changes
to the tax code. For additional information and
guidance in your tax planning, give us a call.
