Beginning in 2005, the same definition of “qualifying child” applies, with some exceptions, for each of the following tax benefits.

In general, all four of the following tests must be met to claim someone as a qualifying child.

A person who used to qualify as your dependent but who is not your “qualifying child” may still qualify as your dependent as a “qualifying relative”. To claim the dependency exemption for a qualifying relative, the person cannot be the qualifying child of any other person and the other tests discussed in Publication 501 must be met.

If you are a dependent of another person, you cannot claim any dependents on your return.

For purposes of the special rule for divorced or separated parents that applies to the dependency exemption and the child tax credits, the custodial parent is the parent having custody for the greater part of the year. Custody, for this purpose, means the child lives in the parent's main home. The noncustodial parent is the parent who is not the custodial parent. Under this special rule, a child can be treated as the qualifying child or qualifying relative of the noncustodial parent if he or she attaches to his or her tax return Form 8332 (or a similar statement containing the same information) signed by the custodial parent. Other conditions must be met and an exception applies to certain pre-1985 instruments. See the January 2006 revision of Form 8332, Release of Claim to Exemption for Child of Divorced or Separated Parents, for more information.

In general, you can use head of household filing status only if, as of the end of the year, you were unmarried or “considered unmarried” and you paid over half the cost of keeping up a home:

But you cannot use head of household filing status for a person who is your dependent only because:

Beginning in 2005, a foster child no longer qualifies you to use qualifying widow(er) filing status.

Use new Form 8901, Information on Qualifying Children Who Are Not Dependents, to give the IRS information on any qualifying child for the child tax credit if the child is not your dependent. Complete and file Form 8901 if your qualifying child is not your dependent because either of the following applies.

For 2005, the minimum earned income amount used to figure the additional child tax credit has increased to $11,000.

For social security tax, the maximum amount of 2005 wages subject to the tax has increased to $90,000. For Medicare tax, all covered 2005 wages are subject to the tax. For information about these taxes, see Publication 15 (Circular E), Employer's Tax Guide.

For 2005, the amount of your interest exclusion is phased out if your filing status is married filing jointly or qualifying widow(er) and your modified adjusted gross income (MAGI) is between $91,850 and $121,850. You cannot take the deduction if your MAGI is $121,850 or more.

For all other filing statuses, your interest exclusion is phased out if your MAGI is between $61,200 and $76,200. You cannot take a deduction if your MAGI is $76,200 or more. For more information, see chapter 10 in Publication 970, Tax Benefits for Education.

The limit on the exclusion for payments made on a per diem or other periodic basis under a long-term care insurance contract has increased for 2005. 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.

A registered domestic partner in California must continue to report all wages, salaries, and other compensation for his or her personal services on his or her own return. This reporting requirement was not changed by the California Domestic Partners Rights and Responsibilities Act of 2003, which took effect on January 1, 2005. Therefore, a registered domestic partner cannot report half the combined income earned by the individual and his or her domestic partner as a married person filing separately does in California, a community property state.

You generally can exclude up to 50% of your gain on the sale or trade of qualified small business stock held by you for more than 5 years. This is called the section 1202 exclusion. Beginning in 2005, you generally can exclude up to 60% of your gain if you meet the following additional requirements.

Item (1) will still be met if the corporation ceased to qualify after the 5-year period that begins on the date you acquired the stock. However, the gain that qualifies for the 60% exclusion cannot be more than the gain you would have had if you had sold the stock on the date the corporation ceased to qualify.

The part of the gain that is included in income is 28% rate gain. See Capital Gain Tax Rates in chapter 4 of Publication 550, Investment Income and Expenses.

For more information about the section 1202 exclusion, see Section 1202 Exclusion in chapter 4 of Publication 550. For more information about empowerment zone businesses, see Publication 954, Tax Incentives for Distressed Communities.

For 2005, the maximum HSA deduction has increased to $2,650 ($5,250 for family coverage). The maximum additional deduction for individuals 55 or older has increased to $600. For HSA purposes, the minimum annual deductible of a high deductible health plan remains at $1,000 ($2,000 for family coverage) and the maximum out-of-pocket expenses limit has increased to $5,100 ($10,200 for family coverage). For more information, see Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans.

For 2005, the minimum annual deductible of a high deductible health plan has increased to $1,750 ($3,500 for family coverage). The maximum annual deductible of a high deductible health plan has increased to $2,650 ($5,250 for family coverage). The maximum out-of-pocket expenses limit has increased to $3,500 ($6,450 for family coverage). For more information, see Publication 969.

For 2005, the amount of the student loan interest deduction is phased out if your filing status is married filing jointly and your modified adjusted gross income (MAGI) is between $105,000 and $135,000. You cannot take the deduction if your MAGI is $135,000 or more. For all other filing statuses, the income limits have not changed. For more information, see chapter 4 in Publication 970.

The standard deduction for people who do not itemize deductions on Schedule A (Form 1040) is, in most cases, higher for 2005. 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 2005 Standard Deduction Tables are shown in Publication 501.

If your adjusted gross income is above a certain amount, you may lose part of your itemized deductions. In 2005, this amount has increased to $145,950 ($72,975 if married filing separately). See the instructions for Schedule A (Form 1040), line 28, for more information on figuring the amount you can deduct.

The amount you can deduct for each exemption has increased to $3,200 in 2005.

You lose all or 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 2005, the phaseout begins at:

If your adjusted gross income is above the amount 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.

The following changes to the AMT went into effect for 2005. For more information, see Form 6251, Alternative Minimum Tax—Individuals, and its instructions.

For 2005, the amount of your Hope or lifetime learning credit is phased out if your modified adjusted gross income (MAGI) is between $43,000 and $53,000 ($87,000 and $107,000 if you file a joint return). You cannot claim an education credit if your MAGI is $53,000 or more ($107,000 or more if you file a joint return). For more information, see chapters 2 and 3 in Publication 970.

Beginning in 2005, the maximum adoption credit has increased to $10,630. Also, the exclusion from income of benefits under your employer's adoption assistance program has increased to $10,630. These amounts are phased out if your modified adjusted gross income (MAGI) is between $159,450 and $199,450. You cannot claim the credit or exclusion if your MAGI is $199,450 or more. See Form 8839, Qualified Adoption Expenses, and its instructions for more information.

The following paragraphs explain the changes to the credit for 2005. For details, see Publication 596.

Qualified contributions are not subject to the overall limit on itemized deductions or the 50% adjusted gross income (AGI) limit. A qualified contribution is a charitable contribution paid in cash or by check after August 27, 2005, and before January 1, 2006, to a 50% limit organization (other than certain private foundations described in section 509(a)(3)) if you make an election to have the 50% limit not apply to these contributions.

Your deduction for qualified contributions is limited to your AGI minus your deduction for all other charitable contributions. You can carry over any contributions you are not able to deduct for 2005 because of this limit. In 2006, treat the carryover of your unused qualified contributions as a carryover of contributions subject to the 50% limit.

If you donate a car to a qualified organization after 2004, your deduction generally is limited to the gross proceeds from its sale by the organization. This rule applies if the claimed value of the donated vehicle is more than $500. However, if the organization makes significant intervening use of or materially improves the car, you may be able to deduct its fair market value. In addition, you may be able to deduct the car's fair market value if the organization will give the car, or sell it for a price well below fair market value, to a needy individual to further the organization's charitable purpose.

Before 2005, you could deduct the fair market value of a donated vehicle in most cases.

The new rules also apply to donations of boats, airplanes, and any vehicle manufactured mainly for use on public streets, roads, and highways.

If the claimed value of the car is more than $500, you must have a contemporaneous written acknowledgment of your contribution from the organization and must attach it to your return. Form 1098-C, Contributions of Motor Vehicles, Boats, and Airplanes, can be used for this purpose.

For more information, see Cars, Boats, and Airplanes under Contributions of Property in Publication 526.

For 2005, 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).

Beginning in 2005, you may be able to deduct as a charitable contribution the reasonable and necessary whaling expenses paid during the year in carrying out sanctioned whaling activities. The deduction is limited to $10,000 a year. To claim the deduction, you must be recognized by the Alaska Eskimo Whaling Commission as a whaling captain charged with the responsibility of maintaining and carrying out sanctioned whaling activities.

For more information, see Expenses of Whaling Captains in Publication 526.

You can now use Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return, to obtain an automatic 6-month extension of time (generally 4 months if you are “out of the country”) to file your individual income tax return.

For social security tax, the maximum amount of 2006 wages subject to the tax has increased to $94,200. For Medicare tax, all covered 2006 wages are subject to the tax. For information about these taxes, see Circular E (Publication 15).

For 2006, the amount of your interest exclusion is phased out 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 10 in Publication 970.

The limit on the exclusion for payments made on a per diem or other periodic basis under a long-term care insurance contract has increased for 2006. 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.

The amount of taxable investment income a child under the age of 14 can have without it being subject to tax at the parent's rate has increased to $1,700 for 2006.

For 2006, the maximum HSA deduction has increased to $2,700 ($5,450 for family coverage). The maximum additional deduction for individuals 55 or older has increased to $700. For HSA purposes, the minimum annual deductible of a high deductible health plan has increased to $1,050 ($2,100 for family coverage) and the maximum out-of-pocket expenses limit has increased to $5,250 ($10,500 for family coverage).

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

The standard deduction 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 505.

If your adjusted gross income is above a certain amount, you may lose part of your itemized deductions. In 2006, this amount has increased to $150,500 ($75,250 if married filing separately). See Publication 505 for more information on figuring the amount you can deduct.

Taxpayers with adjusted gross income above a certain amount may lose part of their deduction for personal exemptions and itemized deductions. Beginning in 2006, the amount by which these deductions are reduced is only 2/3 of the amount of the reduction that would otherwise have applied. See Publication 505 for more information on figuring your deductions.

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:

At the time this publication went to print, Congress was considering legislation that would eliminate the following changes.

For 2006, the maximum Hope credit has increased to $1,650 (100% of the first $1,100 of qualified education expenses and 50% of the next $1,100 of qualified education expenses). These dollar amounts are doubled for students attending an eligible education institution in the Gulf Opportunity Zone.

For 2006, the amount of your Hope or lifetime learning credit is phased out 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.

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 in 2006. 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.

If you are a member of a qualified condominium management association for a condominium which you own or a tenant-stockholder in a cooperative housing corporation, you are treated as having paid your proportionate share of any costs of such association or corporation. Credits must be allocated based on the ratio of individual qualified costs to total qualified costs in the case of joint occupancy.

For information on determining if a home is your main home, see Publication 523, Selling Your Home.

To qualify for the credit, qualified energy efficiency improvements must meet certain energy efficiency requirements.

To qualify for the credit, qualified energy property must meet certain performance and quality standards.

Costs allocable to a swimming pool, hot tub, or any other energy storage medium that has a function other than the function of such storage do not qualify for the residential energy efficiency credit.

The clean-fuel vehicle and refueling property 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, and no credit will be allowed after 2006. For more information about electric and clean-fuel vehicles, see chapter 12 in Publication 535, Business Expenses.

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 information, see Form 8910, Alternative Motor Vehicle Credit.

You can 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.

Beginning in 2006, the maximum adoption credit has increased to $10,960. Also, the exclusion from income of 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.

The following paragraphs explain the changes to the credit for 2006.

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

For 2006, you can no longer elect to treat gifts by cash or check as qualified contributions on Schedule A. Qualified contributions for which you made this election were not subject to the 50% of adjusted gross income limit or the overall limit on itemized deductions.

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).

The following tax benefits have expired and will not apply for 2006.

At the time this publication went to print, Congress was considering legislation that would reinstate these benefits. You can visit www.irs.gov for current information on tax changes.