If you were billed after February 28, 2003, and before August 1, 2006, for the federal telephone excise tax on long distance or bundled service, you may be able to request a credit or refund of the tax paid. You had bundled service if your local and long distance service was provided under a plan that does not separately state the charge for local service.

You cannot request the credit if you have already received a credit or refund from your service provider. If you request the credit, you cannot ask your service provider for a credit or refund and must withdraw any request previously submitted to your provider.

If you are required to file an individual income tax return, Form 1040-PR, or Form 1040-SS, request the credit on that return. If you are not required to and do not file any of these returns and would like to request a refund of the tax paid, file Form 1040EZ-T, Request for Refund of Federal Telephone Excise Tax.

You can request the standard amount or the actual amount you paid. If you believe you paid more than the standard amount, it can be to your benefit to request the actual amount. If you request the actual amount paid, you must file Form 8913 showing the amount paid and keep records to substantiate the amount. If you were a sole proprietor, farmer, or lessor of rental real estate, you may be able to estimate your actual expenses. See Form 8913, Credit for Federal Telephone Excise Tax Paid, for details.

The following changes to the AMT went into effect for 2006. For more information, see Form 6251, Alternative Minimum Tax—Individuals, and its instructions.

If you choose to receive your refund by direct deposit, you can now have your refund split among up to three different accounts. You can have your refund deposited into savings accounts, checking accounts, and other accounts, including individual retirement arrangements (IRAs), that have valid routing and account numbers. You cannot request a deposit to an account that is not in your name. To have your refund split among two or three accounts, you must file Form 8888, Direct Deposit of Refund to More Than One Account. You cannot split your refund if you file Form 1040EZ-T, Request for Refund of Federal Telephone Excise Tax, or Form 8379, Injured Spouse Allocation. To have your refund deposited to only one account, do not file Form 8888. You can designate the account directly on your tax return.

You may be eligible for two new credits, the nonbusiness energy property credit and the residential energy efficient property credit, for making energy saving improvements to your home. The nonbusiness energy property credit applies to tax years 2006 and 2007. The residential energy efficient property credit applies to tax years 2006 through 2008. To take the credit, you must file Form 5695, Residential Energy Credits. For credit purposes, costs are treated as being paid when the original installation of the item is completed, or in the case of costs connected with the construction or reconstruction of a building, when your original use of the constructed or reconstructed building begins. If less than 80% of the use of an item is for nonbusiness purposes, only that portion of the costs that are allocable to the nonbusiness use can be used to determine the credit.

A home includes a house, houseboat, mobile home, cooperative apartment, condominium, and certain manufactured homes. You must reduce the basis of your home by the amount of credit allowed.

For information on determining if a home is your main home, see Form 5695.

For more details, see Form 5695.

You may be able to claim this credit if you place an alternative motor vehicle in service for business or personal use after 2005. An alternative motor vehicle must meet certain requirements and be a new:

For more details, see Form 8910, Alternative Motor Vehicle Credit.

You may be able to claim this credit if you place qualified alternative fuel vehicle refueling property in service for business or personal use after 2005. This includes certain property used to store or dispense a clean-burning fuel or recharge motor vehicles propelled by electricity. For more information, see Form 8911, Alternative Fuel Vehicle Refueling Property Credit.

The following paragraphs explain the changes to the credit for 2006. For details, see Publication 596.

The standard deduction for people who do not itemize deductions on Schedule A (Form 1040) is, in most cases, higher for 2006. The amount depends on your filing status, whether you are 65 or older or blind, and whether an exemption can be claimed for you by another person. The 2006 Standard Deduction Tables are shown in Publication 501, Exemptions, Standard Deduction, and Filing Information.

The amount you can deduct for each exemption has increased to $3,300 in 2006.

You lose part of the benefit of your exemptions if your adjusted gross income is above a certain amount. The amount at which the phaseout begins depends on your filing status. For 2006, the phaseout begins at:

Beginning in 2006, you can lose no more than ⅔ of the dollar amount of your exemptions. In other words, each exemption cannot be reduced to less than $1,100.

If your adjusted gross income is above the amount shown for your filing status, use the Deduction for Exemptions Worksheet in the Form 1040 or Form 1040A instructions to figure the amount you can deduct for exemptions. However, if you are claiming a $500 exemption for housing an individual displaced by Hurricane Katrina, use Form 8914 instead.

The following paragraphs explain the changes to charitable contributions for 2006. For details, see Publication 526, Charitable Contributions.

If you were an eligible educator in 2006, you can deduct up to $250 of qualified expenses you paid in 2006 as an adjustment to gross income, rather than as a miscellaneous itemized deduction. This provision, which had expired for tax years after 2005, has been extended through tax year 2007. If you and your spouse are filing jointly and both of you were eligible educators, the maximum deduction is $500. However, neither spouse can deduct more than $250 of his or her qualified expenses.

You may be able to deduct qualified tuition and fees paid during the year for yourself, your spouse, or your dependent. This provision, which had expired for tax years after 2005, has been extended through tax year 2007.

Exception.   Use Worksheet 6-1 in Publication 970 instead of the worksheet in this publication to figure your tuition and fees deduction if you file Form 2555, 2555-EZ, or 4563, or you exclude income from sources within Puerto Rico.

Tuition and Fees Deduction Worksheet

Before you begin: Figure any write-in adjustments to be entered on the dotted line next to Form 1040, line 36. Be sure you read the Exception to see if you can use this worksheet instead of Worksheet 6-1 in chapter 6 of Publication 970 to figure your deduction.

1.	Enter the amount from Form 1040, line 22								1.
2.	Enter the total from Form 1040, lines 23 through 33, jury duty pay included on line 34, plus any write-in adjustments you entered on the dotted line next to line 36					2.
3.	Subtract the amount on line 2 from the amount on line 1. If the result is more than $80,000 ($160,000 if married filing jointly), you cannot take the deduction for tuition and fees.								3.
4.	Tuition and fees deduction. Is the amount on line 3 more than $65,000 ($130,000 if married filing jointly)? Yes. Enter the total qualified tuition and fees you paid in 2006. Do not enter more than $2,000. Also, include this amount on Form 1040, line 35 (see How the deduction is claimed). No. Enter the total qualified tuition and fees you paid in 2006. Do not enter more than $4,000. Also, include this amount on Form 1040, line 35 (see How the deduction is claimed).								4.
	Note. Do not include this amount in figuring any other deduction on your return (such as on Schedule A, C, E, etc.).

The maximum amount of wages subject to the social security tax for 2006 is $94,200. There is no limit on the amount of wages subject to the Medicare tax.

For 2006, the amount of your Hope or lifetime learning credit is phased out (gradually reduced) if your modified adjusted gross income (MAGI) is between $45,000 and $55,000 ($90,000 and $110,000 if you file a joint return). You cannot claim an education credit if your MAGI is $55,000 or more ($110,000 or more if you file a joint return). For more information, see chapters 2 and 3 in Publication 970, Tax Benefits for Education.

For 2006, the minimum earned income amount used to figure the additional child tax credit has increased to $11,300.

If your adjusted gross income is above a certain amount, you may lose part of your itemized deductions. In 2006, this amount is increased to $150,500 ($75,250 if married filing separately). Beginning in 2006, the amount by which these itemized deductions are reduced is only ⅔ of the amount of the reduction that otherwise would have applied. See the instructions for Schedule A (Form 1040), line 28, for more information on figuring the amount you can deduct.

The Tax Relief and Health Care Act of 2006 extended the election to deduct state and local general sales taxes through 2007. The act was enacted after Schedule A (Form 1040), Itemized Deductions, and its instructions were printed. Because we were not able to include the instructions for figuring the deduction in the Schedule A instructions, we developed Publication 600 to help you figure the deduction for 2006. For more information, see Publication 600, available on the IRS website at
www.irs.gov/pub/irs-pdf/p600.pdf, and the sales tax deduction calculator, available on the IRS website at www.irs.gov/individuals/article/0,,id=152421,00.html.

For 2006, the maximum HSA deduction increased to $2,700 ($5,450 for family coverage). The maximum additional deduction for individuals age 55 or older increased to $700. For HSA purposes, the minimum annual deductible of a high deductible health plan increased to $1,050 ($2,100 for family coverage) and the maximum annual deductible and other out-of-pocket expenses limit increased to $5,250 ($10,500 for family coverage). For more information, see Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans.

For 2006, the maximum adoption credit has increased to $10,960. Also, the maximum exclusion from income for benefits under your employer's adoption assistance program has increased to $10,960. These amounts are phased out if your modified adjusted gross income (MAGI) is between $164,410 and $204,410. You cannot claim the credit or exclusion if your MAGI is $204,410 or more. See Form 8839, Qualified Adoption Expenses, and its instructions for more information.

A child's investment income may be subject to tax at the parent's tax rate if the child is under age 18 (previously under age 14) at the end of 2006 and had investment income of more than $1,700. For details, see Publication 929, Tax Rules for Children and Dependents.

For 2006, the amount of your interest exclusion is phased out (gradually reduced) if your filing status is married filing jointly or qualifying widow(er) and your modified adjusted gross income (MAGI) is between $94,700 and $124,700. You cannot take the deduction if your MAGI is $124,700 or more.

For all other filing statuses, your interest exclusion is phased out if your MAGI is between $63,100 and $78,100. You cannot take a deduction if your MAGI is $78,100 or more. For more information, see chapter 9 in Publication 970, Tax Benefits for Education.

For 2006, the maximum amount of qualified long-term care premiums you can include as medical expenses has increased. You can include qualified long-term care premiums, up to the amounts shown below, as medical expenses on Schedule A (Form 1040).

Note. The limit is for each person.

Medicare Part D is a voluntary prescription drug insurance program for persons with Medicare A or B. You can include as a medical expense on Schedule A (Form 1040) premiums you pay for Medicare D.

The limit on the exclusion for payments made on a per diem or other periodic basis under a long-term care insurance contract increased for 2006 to $250 per day. The limit applies to the total of these payments and any accelerated death benefits made on a per diem or other periodic basis under a life insurance contract because the insured is chronically ill.

Under this limit, the excludable amount for any period is figured by subtracting any reimbursement received (through insurance or otherwise) for the cost of qualified long-term care services during the period from the larger of the following amounts.

See Section C of Form 8853, Archer MSAs and Long-Term Care Insurance Contracts, and its instructions for more information.

The clean-fuel vehicle deduction expired for vehicles placed in service in 2006. The qualified electric vehicle credit is reduced by 75% for vehicles placed in service in 2006.

For Archer MSA purposes for 2006, the minimum annual deductible of a high deductible health plan increased to $1,800 ($3,650 for family coverage). The maximum annual deductible of a high deductible health plan increased to $2,700 ($5,450 for family coverage). The maximum out-of-pocket expenses limit increased to $3,650 ($6,650 for family coverage).

The credit for the first-time purchase of a home in the District of Columbia was extended through 2007. To claim this credit, use Form 8859.

If you are a judicial officer and you sell property at a gain after December 20, 2006, according to a certificate of divestiture issued by the Judicial Conference of the United States (or its designee) and purchase replacement property (permitted property) within 60 days after the sale, you may elect to defer part or all of the realized gain. This election also applies to sales by certain persons related to the judicial officer and to sales by trustees of certain trusts in which the judicial officer or related person has a beneficial interest.

If you are an employee of the intelligence community, you may be able to exclude from income a gain from selling your main home, even if you did not live in it for the required 2 years during the 5-year period ending on the date of sale. You can choose to have the 5-year test period for ownership and use suspended during any period you or your spouse serve on qualified official extended duty as an employee of the intelligence community at a duty station located outside of the United States. This choice applies to any sale of a main home after December 20, 2006, and is now included under a special rule that already provides similar benefits to members of the uniformed services and Foreign Service of the United States. For more information, see Publication 523, Selling Your Home.

Publication 1212 will no longer be revised annually and therefore does not contain the original issue discount (OID) tables, Sections I-A through III-G. The tables are only available on the IRS website at www.irs.gov/formspubs/article/0,,id=109875,00.html. They are posted to the website in late November or early December of each year.

The following changes to the AMT went into effect for 2007.

The following paragraphs explain the changes to the credit for 2007.

The standard deduction for people who do not itemize deductions on Schedule A (Form 1040) is, in most cases, higher for 2007 than it was for 2006. The amount depends on your filing status, whether you are 65 or older or blind, and whether an exemption can be claimed for you by another person. The 2007 Standard Deduction Tables are shown in Publication 505, Tax Withholding and Estimated Tax.

The amount you can deduct for each exemption has increased to $3,400 in 2007.

You lose part of the benefit of your exemptions if your adjusted gross income is above a certain amount. The amount at which the phaseout begins depends on your filing status. For 2007, the phaseout begins at:

See Publication 505 for more information on figuring the amount you can deduct.

The maximum amount of wages subject to the social security tax for 2007 is $97,500. There is no limit on the amount of wages subject to the Medicare tax.

For 2007, the amount of the student loan interest deduction is phased out if your modified adjusted gross income (MAGI) is between $55,000 and $70,000 (between $110,000 and $140,000 if married filing jointly). You cannot take the deduction if your MAGI is $70,000 or more ($140,000 or more if married filing jointly). For more information, see chapter 4 in Publication 970.

For 2007, the amount of your Hope or lifetime learning credit is phased out (gradually reduced) if your modified adjusted gross income (MAGI) is between $47,000 and $57,000 ($94,000 and $114,000 if you file a joint return). You cannot claim an education credit if your MAGI is $57,000 or more ($114,000 or more if you file a joint return). For more information, see chapters 2 and 3 in Publication 970, Tax Benefits for Education.

For 2007, the minimum earned income amount used to figure the additional child tax credit has increased to $11,750.

Premiums that you pay or accrue for “qualified mortgage insurance” during 2007 in connection with home acquisition debt on your qualified home are deductible as an itemized deduction. The amount you can deduct is reduced by 10% (.10) for every $1,000 ($500 if your filing status is married filing separately) by which your adjusted gross income exceeds $100,000 ($50,000 if your filing status is married filing separately). For the definitions of home acquisition debt and qualified home, see Publication 936, Home Mortgage Interest Deduction.

Mortgage insurance premiums you paid or accrued on any mortgage insurance contract issued before January 1, 2007, are not deductible as an itemized deduction. Mortgage insurance premiums you paid or accrued after December 31, 2007, or that are properly allocable to any period after December 31, 2007, are not deductible as an itemized deduction.

If your adjusted gross income is above a certain amount, you may lose part of your itemized deductions. In 2007, this amount is increased to $156,400 ($78,200 if married filing separately). See Publication 505 for more information on figuring the amount you can deduct.

For 2007, the maximum adoption credit has increased to $11,390. Also, the maximum exclusion from income for benefits under your employer's adoption assistance program has increased to $11,390. These amounts are phased out if your modified adjusted gross income (MAGI) is between $170,820 and $210,820. You cannot claim the credit or exclusion if your MAGI is $210,820 or more.

For 2007, the amount of your interest exclusion is phased out (gradually reduced) if your filing status is married filing jointly or qualifying widow(er) and your modified adjusted gross income (MAGI) is between $98,400 and $128,400. You cannot take the deduction if your MAGI is $128,400 or more.

For all other filing statuses, your interest exclusion is phased out if your MAGI is between $65,600 and $80,600. You cannot take a deduction if your MAGI is $80,600 or more. For more information, see chapter 9 in Publication 970, Tax Benefits for Education.

If you have any unused minimum tax credit carryforward from 2003 or earlier years, your minimum tax credit allowable for 2007 is not less than the “AMT refundable credit amount.” In addition, a portion of the credit may be refundable in 2007. That means, if the refundable part of the credit is more than your tax, you can get a refund of the difference. To figure the refundable amount of your minimum tax credit, and the AMT refundable credit amount, apply the rules that follow under Long-term unused minimum tax credit, AMT refundable credit amount, and Credit refundable.

For 2007, the maximum amount of qualified long-term care premiums you can include as medical expenses has increased. You can include qualified long-term care premiums, up to the amounts shown below, as medical expenses on Schedule A (Form 1040).

Note. The limit is for each person.

The limit on the exclusion for payments made on a per diem or other periodic basis under a long-term care insurance contract increases for 2007 to $260 per day. The limit applies to the total of these payments and any accelerated death benefits made on a per diem or other periodic basis under a life insurance contract because the insured is chronically ill.

Under this limit, the excludable amount for any period is figured by subtracting any reimbursement received (through insurance or otherwise) for the cost of qualified long-term care services during the period from the larger of the following amounts.

For Archer MSA purposes for 2007, the minimum annual deductible of a high deductible health plan increases to $1,900 ($3,750 for family coverage). The maximum annual deductible of a high deductible health plan increases to $2,850 ($5,650 for family coverage). The maximum out-of-pocket expenses limit increases to $3,750 ($6,900 for family coverage).

Musical compositions and copyrights in musical works are generally not capital assets. However, you can elect to treat these types of property as capital assets if you sell or exchange them in tax years beginning after May 17, 2006, and:

If you receive an award from the IRS for information provided after December 19, 2006, that substantially contributes to the detection of violations of tax laws by the IRS, you may be able to deduct attorney fees and court costs paid by you in connection with the award, up to the amount of the award includible in your gross income on account of the award, as an adjustment to income.

For returns filed after March 15, 2007, the penalty for filing a frivolous tax return is increased to $5,000. The $5,000 penalty also applies to other specified frivolous submissions made and issues raised after March 15, 2007. Notice 2007-30, which will be published in Internal Revenue Bulletin 2007-14, contains a list of frivolous positions that will trigger the increased penalty amount. The penalty is in addition to any other penalty provided by law.