Tax Relief and Health Care Act of 2006
by Edward Warren CPA, CFP
Taxpayers need to be aware of recent tax legislation that should have a positive impact on their tax filings.
The Tax Relief and Health Care Act of 2006, signed into law on Dec. 20, 2006, is a wide-ranging tax measure that preserves a variety of popular tax provisions for individuals and businesses, extends provisions encouraging alternative and renewable energy sources, and also involves trade, oil drilling and Medicare provisions. A few quick highlights are:
Tuition Deduction
The tax deduction, allowing taxpayers to deduct up to $4,000 (depending on their income) for qualified higher education expenses, is extended through 2007. This deduction is in lieu of claiming the Hope or Lifetime Learning tax credits.
State and Local General Sales Taxes
The tax break allowing individual taxpayers to take an itemized deduction for state and local general sales taxes in lieu of the itemized deduction permitted for state and local income taxes is extended through 2007. Taxpayers have two options for determining deductible sales tax: (i) actual sales tax paid if receipts are maintained or (ii) use of tables provided by IRS plus sales tax on large purchases such as a boat or car.
Health Savings Account Provisions
The act includes many changes for health savings accounts (HSAs), including allowing one-time rollovers from health flexible spending accounts and health reimbursement arrangements into HSAs (after the enactment date and before 2012); repeal of the annual plan deductible limit on HSA contributions (after 2006); expanded contributions limit for part-year coverage (after 2006); and allowing one-time transfers from IRAs into HSAs, subject to certain limits.
Research Tax Credit
The research and development credit, which expired at the end of 2005 under prior law, is extended to qualified amounts paid or incurred during 2006 and 2007. In addition, for tax years ending after 2006, the act enhances the credit by increasing the rates of the alternative incremental credit and creating a new alternative simplified credit that does not use gross receipts as a factor.
Leasehold & Restaurant Improvement Recovery
The accelerated write-off for certain leasehold improvements and restaurant property (depreciation over 15 years instead of 39 years) is extended through 2007.
Enhanced Deduction for Corporate Contributions of Computer Equipment for Educational Purposes
The rule that encourages businesses to contribute computer technology and equipment to schools by allowing an enhanced deduction for such contributions is extended through 2007.
Deduction for Energy Efficient Commercial Buildings
The deduction for energy-efficient commercial buildings meeting a 50 percent energy reduction standard is extended for one year, though Dec. 31, 2008.
The new law will certainly impact the filing of 2006 returns as the IRS had to send key forms and schedules for the 2006 year to the printer before the new law was enacted. However, the IRS announced the 2007 filing season will begin on time and that it will not reprint forms and schedules to reflect the new law. The IRS is taking a number of steps to ensure taxpayers have the correct information relating to the new law. Visit www.IRS.gov for updated information on the late legislation. The IRS also is urging taxpayers to use e-file, which will reduce the chance of errors related to the new tax law. 
NOTE: The purpose of this column is to provide a brief overview of some of the key provisions contained in the act and should not be used or construed as providing tax advice regarding your particular situation. If you have any questions regarding how the act may apply to you or your business, please contact a tax advisor.
Edward Warren CPA, CFP is a partner in the tax department and the wealth management group of RubinBrown.
P | 913.491.4144
E | edward.warren@rubinbrown.com