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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’s 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 me a call.
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