Key Tax Breaks That Have Expired

Congress could not agree on a deal by the end of 2005, so valuable tax breaks expired at the end of the year, as I warned you in the December issue. Both the House and Senate passed bills to extend the provisions, but their versions were different and could not be reconciled in time.
Sources in Washington say that the key players will start meeting in February and reach a deal that retroactively reinstates the tax breaks. But until that happens, for your 2006 tax return the following tax breaks have expired.

The higher alternative minimum tax exemption. The lower exemption that prevailed before the 2003 tax law is back, which means that more middle class taxpayers will pay the AMT.

The deduction for state and local sales taxes. This was reinstated by the 2003 tax law. For 2004 and 2005 taxpayers could choose to deduct as itemized expenses either sales taxes or state and local income taxes. That provided a break to taxpayers from states with no or low income taxes and high sales taxes.

Deductions for school teachers. Elementary and secondary school teachers could deduct up to $250 of supply expenses directly from income without itemizing.

Of course, Congress also failed to extend a list of tax breaks that will expire in coming years. These include the 15% rate for dividends and long-term capital gains and the lower tax rates from the 2001 and 2003 tax laws. The estate tax repeal also still is set to expire after 2010.