The state of the tax code is certainly confusing. Many of the tax breaks in recent tax-relief bills were designed to be phased in over a number of years. Below is a list of tax law changes that take effect from 2006 through 2011.

Starting in 2006

Increased Section 179 Expense Deduction. The maximum amount of equipment placed in service in 2006 that businesses can expense increased to $108,000, a $3,000 increase from 2005. The annual investment limit increased to $430,000 for 2006, up from $420,000 the year before. Thus, you won't lose the benefit of expensing until you place more than $430,000 of assets in service in 2006. Qualifying purchases made in the Gulf Opportunity Zone are eligible for a $100,000 increased to $208,000, and the investment limitation increases $600,000 to $1,030,000 for these purchases.

Self-Employment Tax Contribution Base Increased. The maximum amount of self-employment income subject to Social Security taxes increased from $90,000 to $94,200. The self-employment tax rate remains 15.3 percent.
Estate Tax Exemption. In 2006, the federal estate tax exemption increased to $2 million, up by $500,000 from 2005.

Social Security Tax Contribution Base Increased. The maximum amount of wages subject to Social Security tax increases from $90,000 to $94,200. The tax rate remains 7.65 percent on employers and employees.

Business Standard Mileage Rate Decreased. The standard business mileage rate decreased from 48.5 cents per mile to 44.5 cents per mile for miles driven for business. You can deduct the cost of parking and tolls in addition to the mileage allowance.

Tax-Free Parking for Employees. Starting in 2006, firms can pay for $205 a month of parking tax free for employees, up $5 per month from 2005. The cap on tax-free transit passes remained $105 a month.
Solar Heating Credit. Businesses received a 30 percent tax credit for the cost of solar heating units and fuel cells placed in service in 2006. Previously, the credit had been 10 percent.

Tax Credit for Energy-Efficient Homes. Builders can claim a special tax credit for energy-efficient homes that are sold in 2006. The maximum available credit is $2,000 per house.

Energy-Saving Improvements to Commercial Real Estate. Landlords can expense the cost of improvements that decrease a building's energy usage by 16.67 percent or more. If the improvements cause an energy savings of between 16.67 percent and 50 percent, the maximum write-off is 60 cents per square foot of floor space. If the improvements cause an energy savings of 50 percent or more, the maximum deduction for their cost is capped at $1.80 per square foot of floor space. Independent examiners must certify that the savings will be obtained.

Starting in 2007

Self-Employment Tax Contribution Base Increased. The maximum amount of self-employment income subject to Social Security taxes increases to $97,500 in 2007, up from $94,200 in 2006. The self-employment tax rate remains 15.3 percent.

Social Security Tax Contribution Base Increased. The maximum amount of wages subject to Social Security tax increases to $97,500 in 2007, up from $94,200 in 2006. The tax rate remains 7.65 percent on employers and employees.
Business Standard Mileage Rate Rises. The standard business mileage rate increased to 48.5 cents per mile for miles driven in 2007 for business, up from 44.5 cents per mile in 2006. You can deduct the cost of parking and tolls in addition to the mileage allowance.

Tax-Free Parking for Employees. Starting in 2007, firms can pay for $215 a month of parking tax free for employees, up $10 per month from 2006. The cap on tax-free transit passes rises to $110 a month, up $5 a month from 2006.

Increased Section 179 Expense Deduction. The maximum amount of equipment placed in service in 2007 that businesses can expense increases to $112,000, a $4,000 increase from 2006. The annual investment limit increases to $450,000 for 2007, up from $430,000 the year before. Thus, you won't lose the benefit of expensing until you place more than $450,000 of assets in service in 2007.

Domestic Production Activities Deduction. Starting in 2007, this deduction increases to six percent of qualifying business net income from domestic production activities. This deduction applies to businesses engaged in construction, engineering, or architectural services; film production; or the lease, rental, or sale of equipment manufactured in the United States.

Starting in 2008

Reduction in Capital Gains Tax Rates. Prior to 2008, long-term capital gains from the sale of assets held longer than one year were taxed at a maximum rate of five percent to the extent the seller was in the 10 or 15 percent tax brackets. In 2008, the five percent maximum rate drops to zero percent through 2010. The 15 percent maximum tax rate on other long-term capital gains stays the same.

Reduction in Dividend Tax Rates. Similarly, in 2008, the special five percent maximum rate on dividends of taxpayers in the 10 and 15 percent tax brackets drops to zero percent through 2010.

Energy-Saving Improvements to Commercial Real Estate. The special expensing for the cost of energy-saving improvements to commercial building is not available after 2007.

Tax Credit for Energy-Efficient Homes. The special credit for builders selling energy-efficient homes expires after 2007.

Solar Heating Credit. The 30 percent tax credit for businesses on the cost of solar heating units and fuel cells falls to 10 percent for those that are placed in service after 2007.

Starting in 2009

Estate Tax Exemption. In 2009, the $2 million federal estate tax exemption rises to $3,500,000.

Starting in 2010

Decreased Section 179 Expense Deduction. The maximum amount decreases to $25,000, and the annual investment limit drops to $100,000.

Domestic Production Activities Deduction. Starting in 2010, this deduction increases to nine percent of qualifying business net income from domestic production activities. This deduction applies to businesses engaged in construction, engineering, or architectural services; film production; or the lease, rental, or sale of equipment manufactured in the United States.

Estate Tax Repealed. The federal estate tax is eliminated for estates of individuals dying in 2010.

Starting in 2011

Withholding on Government Contracts. Starting in 2011, amounts paid out under government contracts will be subject to three percent tax withholding. This will affect contracts with the federal government, state governments and any municipality that pays out $100 million or more on contracts a year. Interest and payments for real estate are exempted.

Estate Tax Revived. For individuals dying after 2010, the federal estate tax returns with a $1 million exemption and a 50-percent maximum rate.

Increase in Capital Gains and Dividend Tax Rates. The tax rate reductions for long-term capital gains and dividends expire this year.

• In 2011, the maximum long-term capital gains tax rate goes back up to 20 percent from 15 percent. A lower 10 percent tax rate is used by individuals to the extent that they are in the 10 percent and 15 percent tax brackets. Their long-term capital gains had been tax free since 2008.
• In 2011, dividend income (other than capital gain distributions from mutual funds) is taxed as ordinary income at the taxpayer's highest marginal tax rate.