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Alert: Congress extends expired tax breaks

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in Small Business Tax

Just before adjourning for the year, Congress extended through 2007 various tax breaks that had officially expired after 2005.

The Tax Relief and Health Care Act of 2006 (H.R. 6111) extends the following provisions, retroactive to Jan. 1, 2006:

• The above-the-line deduction for qualified higher-education expenses (maximum deduction of $4,000).

• The deduction for state sales tax claimed in lieu of deducting state and local income taxes.

• The research and development credit, with some modifications.

• The Work Opportunity Tax Credit and the Welfare-to-Work credits. For 2007, the two credits are combined.

• The above-the-line deduction for teacher classroom expenses (capped at $250).

• Fifteen-year depreciation periods for leasehold and restaurant improvements (as opposed to the usual 39-year write-off period).

• Availability of Archer Medical Savings Accounts.

• The expanded deduction for scientific property and computer equipment donated to education institutions or other qualified charities.

The bill also extends through 2008 numerous tax incentives for energy-saving purchases, which generally were scheduled to expire at the end of 2007. Finally, H.R. 6111 contains several provisions designed to improve Health Savings Accounts. Read more about that in coming issues.

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