• Home
• Federal Income Taxes
• State Tax Laws
• Estate Planning
• Publications
• Professional Research
  • Master Index
  • Case Law
  • Revenue Rulings
  • Private Letter Rulings
  • Regulations
  • Internal Revenue Code
  • Public Laws
  • Research Process
• Tax Workshops/Education
• Tax Policy
• Links

Tax Increase Prevention and Reconciliation Act of 2005

Capital Gains Rates Extended - On May 17, 2006 the President signed, H.R. 4297. The major provision affecting timber owners is the extension of the 5% and 15% capital gains rates through December 31, 2010. The lower rate is for taxpayers in the 10% or 15% ordinary income tax brackets. This 5% rate goes to 0% after 2007. Without this action by Congress the capital gains rates would have gone back-up to 10% and 20% for sales and other disposals after December 31, 2008. This rate extension to 2010 means that the lower capital gains rates will expire at the same time as all the changes under the Economic Growth and Tax Relief Reconciliation Act of 2001.

Alternative Minimum Tax - Relief from the alternative minimum tax is provided for the 2006 tax year only. The exemption amount for married couples filing jointly is increased to $62,550 and for single taxpayers is $42,500. The bill also extends the offset for certain nonrefundable personal credits, such as the dependent care credit, credit for elderly and disabled, among others.

Expensing of Capital Costs by Small Businesses - The American Jobs Creation Act of 2004 increased the the cost of capital expenditures, such as equipment, that could be expensed to $100,000. This amount is reduced by the amount by which the cost of qualifying property exceeds $400,000. The $100,000 allowance is extended through December 31, 2009.

Wage Limit on Domestic Production Activities Deduction - This deduction is limited to 50% of wages paid by the taxpayer. As a revenue raiser Congress limited the wages that are included in determining this limit to those included in the determination of the Qualified Production Activities Deduction, not total wages paid.

Increased Deduction for Contribution of Conservation Easements Included in Pension Protection Act of 2006, not the Tax Increase Prevention and Reconciliation Act of 2005. Although the Senate passed it, the conference agreement signed by the President did not include the increased deduction for charitable contributions of qualified conservation contributions, i.e. outright donation of fee interest and conservation easements. The Senate's provision would have increased the deduction by subjecting qualified conservation contributions to the 50% limit instead of the 30% limit that applies to capital gain property. In addition, the amount not allowable in the current year that could be carried over to the next 15 years would have been increased for donations by qualified farmers and ranchers. These provisions are available, however, under provisions of the Pension Protection Act of 2006.