Among its last acts before heading home to spend the holidays with family and friends, Congress finally reinstated some popular tax breaks that had expired almost a year ago.
You may not have noticed the tax deductions had disappeared, because you would not be trying to claim them until you filled out your 2006 tax return at the beginning of next year. If you had noticed, you can now rest assured that you won't have to do without a deduction on which you've been relying.
This is good news for teachers, or parents of college students, among others. It's not such great news for anyone who fills out their tax forms the old-fashioned way, with a pencil, paper, and calculator. That's because the IRS had to send the tax forms and instructions to the printers before this last tax act, so it had to consider all those tax breaks expired. Keep your eye out for more instructions from your friendly tax collectors.
In the meantime, take a look at the tax reductions that lawmakers kept on the books and see if you might qualify:
- This year and next year, parents and students can use a deduction to offset the costs of higher education. For anyone earning $65,000 or less ($130,000 or less for a married couple), the deduction is worth $4,000. For higher-income taxpayers who earned up to $80,000 ($160,000 for married couples), the deduction amounts to $2,000.
- This year and next year, taxpayers may opt to deduct their state sales taxes from their federal income taxes. This is particularly good news for residents in a handful of states, like Florida and Texas, that rely on sales taxes, not income taxes, for revenue. It may also be good news for anyone in any state who made one or more major purchases this year, like a car or boat. It may be more beneficial to you to deduct your state sales taxes instead of your state income taxes. (Nope, you can't deduct both.)
- Teachers, this year and next, can take a $250 deduction for any books or supplies they purchased for use in the classroom.
- As a bonus, lawmakers created a new itemized deduction for certain people who pay mortgage insurance on their home next year. Right now, the deduction is fairly restrictive. It starts to phase out for taxpayers who earn $100,000 or more, and it's gone for anyone who earns $110,000 or more. It goes into effect beginning next year, and it only applies to mortgages issued in 2007. Like many tax breaks, however, once it's on the books, it stands a pretty good chance of sticking around in future years.
- Lastly, soldiers who earned combat pay can continue next year to count that money toward their eligibility for the earned income tax credit. Combat pay doesn't get taxed, so it had traditionally not counted under the rules governing earned income credit eligibility.
As with all tax deductions and credits, you'll have to meet all the requirements to qualify. Keep these breaks in mind when that dreaded tax deadline starts to loom next year. For some general help about all things tax, take a look around the Tax Center. You're bound to find a tax deduction or credit that might benefit you.
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Fool contributor Mary Dalrymple will not do your taxes, but she welcomes your feedback.