Congress enacted two major tax laws in 2006. The Pension Protection Act, which was enacted in July, was addressed in the October edition of this newsletter. In the closing days of 2006 Congress enacted the Tax Relief and Health Care Act. While designed primarily to extend various popular tax benefits that were scheduled to expire at the end of 2005, the Act incorporated several additional changes. Those provisions of most relevance to church leaders include the following:
- The Act extends the state and local sales tax deduction through 2007.
- The Act extends the popular above-the-line deduction for higher education expenses through 2007. This provision allows taxpayers to deduct up to $4,000 (depending on their income) of higher education expenses in lieu of claiming the Hope or Lifetime Learning tax credits.
- The Act extends the above-the-line deduction for teacher classroom expenses through 2007. This provision allows teachers to deduct up to $250 of out-of-pocket costs incurred to purchase books, supplies and other classroom equipment.