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Before filing, be aware of tax changes not on forms

Congress' last-minute alterations - including tuition and sale s tax deductions - came too late for the IRS to update its paperwork.

By HELEN HUNTLEY
Published December 12, 2006

The tax bill that made its way through Congress in the wee hours Saturday morning breathed new life into some expiring tax breaks and will have the IRS scrambling to update information for the 2006 tax season.

"The forms are already out, so the IRS is going to have to come up with supplemental instructions that tell people what line to put these deductions on," said Mark Luscombe, principal analyst for tax publisher CCH. "Some pretty popular things are going to be handled this way."

A whopping $45-billion in tax benefits is included in the Tax Relief and Health Care Act of 2006, which President Bush is expected to sign.

Here are some highlights:

Sales tax deduction

This is a gift to taxpayers in Florida and eight other states without an income tax. Originally passed as a deduction for 2004 and 2005, it now will be available for 2006 and 2007 returns. The deduction, available only to those who itemize, is based on actual taxes paid or on an amount taken from an IRS table based on household size and income. For example, last year's table allowed a $742 deduction for a Florida family of four with an adjusted gross income of $50,000 to $60,000. Residents of counties with a 6.5 or 7 percent tax get to deduct a little extra. In addition, sales taxes paid on the purchase or lease of motor vehicles and building materials can be added to the number from the table.

Mortgage insurance premiums

Here's something new: a bonus for people who buy houses with low or no down payment and are required by lenders to buy mortgage insurance. The premiums now will be classified as deductible mortgage interest provided that they are paid in connection with a mortgage to buy a house and the taxpayer's income is less $110,000 $100,000 for a full deduction.

Tuition deduction

Congress extended for two more years the above-the-line deduction of up to $2,000 or $4,000 (depending on income) for qualifying tuition and fees. Above-the-line means you don't have to itemize to get the deduction. This break is of particular benefit to families who make a little too much to qualify for the HOPE and Lifetime Learning credits.

Health savings accounts

New rules will make these tax-exempt accounts more flexible and allow them to grow much larger. The maximum contribution in 2007 will be $2,850 for an individual or $5,650 for a family. Currently the contribution cannot be any larger than the annual deductible on the companion health insurance plan.

The new law also allows a one-time rollover of money from an IRA to a health savings account, which means that money that would have been taxed on withdrawal can be withdrawn tax-free.

A break for teachers

Another two-year extension applies to a popular $250 above-the-line deduction for teachers who buy classroom supplies with their own money.

And much more ...

Among the many other provisions: extensions of energy tax credits, tax credits for hiring economically disadvantaged workers and research credits. Also, the penalty for filing frivolous returns is going up, from $250 or $1,000 to $5,000.

Helen Huntley can be reached at hhuntley@sptimes.com or (727)893-8230.

[Last modified December 12, 2006, 00:17:30]