December 20, 2006
- Details
- Extenders
- Health Savings Accounts Provisions
- Other Provisions
- For More Information
- Disclosure
Details
President Bush just signed the Tax Relief and Health Care Act of 2006 (the “Act”). The Act includes a package of tax extenders, provisions affecting health savings accounts and other provisions.
Some of the significant provisions of the Act are discussed below.
Extenders
The Act retroactively extends for two years, through December 31, 2007, certain provisions that had expired at the end of 2005, including the following:
- Above-the-line deduction for qualified tuition and higher education expenses
- Elective itemized deduction for state and local general sales taxes (in lieu of deduction for state and local income taxes)
- Research credit
- For tax years ending after December 31, 2006, the
Act also modifies the rules for calculating the research credit by
increasing the rates of the alternative incremental credit and creating a
new alternative simplified credit
- For tax years ending after December 31, 2006, the
Act also modifies the rules for calculating the research credit by
increasing the rates of the alternative incremental credit and creating a
new alternative simplified credit
- Work opportunity tax credit and welfare-to-work tax credit
- Tax credit for qualified zone academy bonds
- Up to $250 above-the-line deduction for certain expenses of elementary and secondary school teachers
- Expensing of brownfields remediation costs
- Tax incentives for investment in the District of Columbia
- Indian employment tax credit
- Accelerated depreciation for business property on Indian reservations
- Fifteen-year depreciation for qualified leasehold improvements and qualified restaurant property
- Enhanced charitable deductions for corporate donations of scientific property used for research and of computer technology and equipment
- Archer medical savings accounts
- Suspension of the taxable income limit on percentage depletion for oil and natural gas produced from marginal properties
The Act extends through December 31, 2007, certain provisions that would otherwise expire at the end of 2006, including the following:
- Election to treat combat pay as earned income for purposes of the earned income credit
- Provisions affecting Internal Revenue Service disclosure of certain tax return information
The Act extends the new markets tax credit through the end of 2008 and requires that future regulations ensure that non-metropolitan counties receive a proportional allocation of qualified entity investments.
The Act extends through December 31, 2008, numerous energy provisions that would otherwise expire at the end of 2007, including the following:
- Tax credit for electricity produced from certain renewable resources
- Authority to issue clean renewable energy bonds
- Deduction for energy-efficient commercial buildings
- Tax credit for new energy-efficient homes
- Tax credit for residential energy-efficient property
Health Savings Accounts Provisions
The Act contains a number of provisions affecting health savings accounts (HSAs), including provisions dealing with limitations on HSA contributions and tax-free rollovers to HSAs from health reimbursement accounts, flexible spending accounts and individual retirement accounts.
Other Provisions
Other significant tax provisions in the Act include the following:
- Expansion of the Section 199 domestic production activity deduction to income from Puerto Rico, if all Puerto Rican receipts are subject to federal income tax
- A refundable credit of 20 percent of the long-term unused alternative minimum tax credits per year for the next five years, subject to certain limitations and phaseouts
- Enhancing reporting requirements for the exercise of incentive stock options and employee stock purchase plans
- Reform and expansion of whistleblower awards to certain individuals who provide information regarding violations of the tax laws
- An increase of the penalty for frivolous tax submissions from $500 to $5,000 and an extension of the scope of the penalty
- A temporary itemized deduction for qualified mortgage insurance premiums accrued during 2007, subject to limitations and phase-out
- Increased information sharing between the IRS and certain regional governmental organizations
- Charitable remainder trusts having unrelated business taxable income are subjected to an excise tax equal to 100% of unrelated business taxable income
- A technical correction to the Subpart F look-through rule under the Tax Increase Prevention and Reconciliation Act of 2005
- The Act clarifies that the Tax Court has jurisdiction to review requests for equitable innocent spouse relief
The Act makes permanent certain provisions that were included as temporary provisions in the Tax Increase Prevention and Reconciliation Act of 2005 and were otherwise scheduled to expire after 2010, including the following:
- Federal income tax exemption of certain qualified settlement funds established to resolve CERCLA claims
- “Separate affiliated group” rule for satisfaction of active trade or business requirement under Section 355
- Election to treat self-created musical works as capital assets
- Exemption from imputed interest rules for certain loans to qualified continuing care facilities
For More Information
Please contact Jim Balthaser, Thomas J. Callahan, Nathan E. Holmes, or J. Shane Starkey or any member of our Tax practice group for more information.
Disclosure
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Last modified: February 13, 2007
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