NEW YORK (CNNMoney.com) -
The Senate early Friday morning passed a $60 billion tax bill that includes extensions for a number of popular tax breaks.
The Senate passage, however, doesn't guarantee the provisions will make it into 2006 law. The House has yet to vote on a competing tax bill that differs from the Senate version in significant ways. And the two bodies will have to reconcile their bills into one final piece of legislation.
For one thing, the House bill calls for an extension of the reduced rates on capital gains and dividends through 2010. The Senate bill originally called for a one-year extension of those rates, but Senate Finance Committee Chairman Charles Grassley (R-Iowa) scrapped the measure when it became clear he couldn't get a majority of votes on his committee.
The extension for the rates, which don't expire until 2008, would come at a time when lawmakers want to reduce the deficit and have proposed doing so in part by curbing spending increases for programs that target low-income Americans. Critics of the provision argue the investment tax break primarily benefits upper-income taxpayers.
Those in favor of the measure contend that the reduced rates have spurred economic growth and are needed to create certainty in capital markets. Republican lawmakers who support the measure publicly express confidence that any final legislation will include the rate extension.
The Senate and House bills also differ when it comes to extending relief for millions of taxpayers who might get caught unfairly by the alternative minimum tax (AMT). The Senate bill calls for AMT relief, but the House bill does not. If the two bodies decide not to include it in the final tax reconciliation package, it is possible lawmakers will decide to provide AMT relief in other legislation since it has broad support.
Beyond that, there are provisions in the Senate bill that are likely to garner bipartisan support, many of which are included in the House version, although some of the time periods differ.
Here's a look at what some of the Senate provisions would mean to you.
AMT relief: The bill calls for increased income exemption levels in the Alternative Minimum Tax (AMT), which was originally created to insure the wealthy don't escape their tax burdens.
The provision will prevent an additional 17 million U.S. taxpayers from getting caught by the tax in 2006. This year, about 4 million taxpayers are expected to have to pay the AMT, which is a larger tax bill than they would owe under the regular income tax system.
This "patch" as it's called would reduce federal revenue by an estimated $28.8 billion over five years.
State and local sales tax deduction: The bill calls for this deduction to be extended for one more year. Currently it is in place only for tax years 2004 and 2005.
It gives taxpayers the option on their federal return of deducting either what they paid in state and local income tax or what they paid in state and local sales taxes, whichever is higher.
This provision has been of greatest advantage to taxpayers who live in the handful of states that don't impose an income tax and to those who live in states with high sales taxes and relatively low income taxes.
This extension would reduce federal revenue by an estimated $2.6 billion over five years.
Tuition deduction: Currently in place for tax years 2002 through 2005, this provision would be extended through 2010 under the bill. It is an above-the-line deduction for qualified higher education expenses, meaning it can be taken even if you don't itemize deductions on your federal return.
The deduction may be taken on a maximum of $4,000 in tuition and fees for taxpayers with adjusted gross income (AGI) of $65,000 or less ($130,000 for married couples) or $2,000 for taxpayers with AGIs of $80,000 or less ($160,000 for married couples).
The tuition deduction may not be taken for expenses for which you are claiming an education credit (e.g., the HOPE or lifetime learning credits). You must choose one or the other if you qualify for both.
Extending the tuition deduction would reduce federal revenue by an estimated $7.4 billion over five years.
Savers credit: Through 2006, low-income taxpayers may receive a credit (a dollar-for-dollar reduction of the taxes they owe) for contributions they make up to $2,000 to qualified retirement savings plans such as 401(k)s, 403(b)s as well as traditional and Roth IRAs. The Senate bill would extend this provision through the end of 2009.
The credit is available only to those taxpayers with AGIs of $25,000 or less ($50,000 or less for married couples).
The move would reduce federal revenue by an estimated $4.1 billion over five years.
Charitable deduction for non-itemizers: For taxpayers who make cash donations to charities but don't itemize on their federal return, the bill calls for cash donations to be deductible, assuming they are over $210 for single filers ($420 for married couples filing jointly). The deduction would also be available to itemizers.
This deduction would reduce federal revenue by an estimated $2 million over five years.
Read about other elements in the Senate tax bill, including a $5 billion tax on big oil companies and other measures to help rebuild regions devastated by hurricanes.
Also, the House early Friday morning narrowly passed a highly controversial $50 billion deficit-reduction package. For more, click here.