As predicted, last minute tax legislation extended certain provisions.

One is the ability to deduct the greater of state sales or state income tax on Schedule A. This means that there is still time to make big ticket purchases if the sales tax will exceed the income tax paid for 2006. This deduction is also available for 2007, so a big ticket purchase will make more sense next year of the state tax paid will be less.

Another is the above the line education tuition deduction, which remains subject to income limits (it is phased out for joint AGI of $160,000), and cannot be used in the same year as the Hope or Lifetime Learning Credit. If you are under the phase out limit, paying spring tuition now may make sense.

The new law extends the $250 above the line deduction to teachers for out of pocket expenses through 2007. Any amount above $250 may be claimed on form 2106.

The new law allows for roll overs to Health Savings Accounts from flexible spending accounts, health reimbursement accounts and, for a once in a lifetime roll over, IRAs. The limit on annual contributions is also repealed.

The new law extends the 30% credit of up to $2,000 for solar water heaters, solar electricity equipment and fuel cell plants through 2008.

The new law creates an AMT credit for up to 20% over five years for unused AMT credits from the exercise of ISOs. However, this new rule has an adjusted income cap of $234,600.

The new law creates an itemized mortgage insurance premium deduction for 2007 for AGI below $100,000.The new law establishes capital gains treatment for self created musical works.

Let us know if you have questions on any of these changes (and see year-end tax planning for ideas for later this year).