Stimulus Plan Tax Updates for 2009

Reprinted with permission—Barfield, Murphy, Shank & Smith © 2009
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On February 13, 2009, Congress passed the American Recovery and Reinvestment Act of 2009. The $787 billion wide-ranging law adds some new breaks to the tax code and extends other deductions and credits that expired.   

President Barack Obama signed the stimulus bill into law on Tuesday, February 17, 2009.  “It will save or create more than 3.5 million jobs over the next two years, ignite spending for businesses and consumers alike, and lay a new foundation for our lasting economic growth and prosperity,” said Obama during his radio address on Saturday.

The American Recovery and Reinvestment Act of 2009 includes major tax provisions for businesses and for qualifying individuals:                                                         

Business

Bonus Depreciation
First year 50% bonus depreciation is extended through 2009. The election to accelerate Alternative Minimum Tax (AMT) and research credits in lieu of taking bonus depreciation is extended to qualifying property placed in service through 2009.

Section 179 Expensing (Small Business Expensing)
The $250,000 expensing amount and $800,000 phase-out threshold are extended through 2009.

Improved Carryback of Small Business Net Operating Losses
Eligible small businesses may carry their 2008 Net Operating Losses (NOL) back for 5 years. An eligible small business has average gross receipts of $15 million or less.

Small Business Estimated Taxes
For 2009, qualified inpiduals (Adjusted Gross Income less than $500,000 and more than 50% of inpidual’s gross income from a small business) may make estimated tax payments equal to 90% of preceding tax year liability instead of 100%.

Work Opportunity Tax Credit (WOTC) – New Employer Hiring Incentive
Two new groups, “disconnected youth” and unemployed veterans, are now targeted by this credit. Employers who hire members of these groups during 2009 or 2010 may be eligible to take the WOTC.

Discharge of Business Indebtedness
Certain business may recognize cancellation of indebtedness income over five years, starting in 2014, if the business repurchases specific types of debt in 2009 or 2010.

Qualified Small Business Stock
The Section 1202 exclusion of gain from the sale of qualified small business stock is increased from 50% to 75% for stock acquired after the enactment date and before January 1, 2011.

S corporations
The recognition period for assets subject to the built-in gains tax is reduced from 10 to 7 years for S corporation tax years beginning in 2009 and 2010.


Individuals

Higher Education
For tax years beginning 2009 and 2010, the maximum HOPE scholarship credit per student is increased from $1800 to $2500, and the availability is extended from the first 2 years of postsecondary education to the first 4 years. The credit now becomes 40% refundable. The new phase-out range is $80,000-$90,000 for Single taxpayers and $160,000-$180,000 Married Filing Jointly. Expenses for course materials are added to definition of qualified tuition and related expenses eligible for the credit.

Homebuyer’s Credit
The first-time homebuyer’s credit is increased to $8,000 and the repayment requirement is eliminated for houses purchased in 2009. The credit is refundable, but for homes purchased between April 9, 2008, and December 31, 2008, it must be recaptured ratably over 15 years or earlier if the home is sold. The stimulus act waives the recapture requirement for homes purchased after Jan1, 2009 and extends sunset of the credit to December 1, 2009. However, the recapture still applies if the taxpayer disposes of the home within three years after purchase.

Making Work Pay Credit
This credit against income tax is 6.2% of earned income up to a total credit of $400 for Single taxpayers and $800 Married Filing Jointly. It is retroactive to the beginning of 2009. It begins phase-out at Modified Adjusted Gross Income (MAGI) of $75,000 for Single taxpayers and $150,000 Married Filing Jointly.

New Car Sales Tax Deduction
Buyers of new cars and light trucks may deduct the portion of state and local sales and excise taxes attributable to the first $49,500 of the vehicle’s purchase price. It is an above the line deduction. The phase-out begins at $125,000 for Single taxpayers and $250,000 Married Filing Jointly. Taxpayers who elect to deduct the state and local sales tax in lieu of state and local income tax are not eligible for this deduction.

Alternative Minimum Tax (AMT) Patch
For 2009, the AMT exemption is increased to $46,700 for Single taxpayers and $70,950 Married Filing Jointly.

Section 529 Plans May Buy Computers
For 2009 and 2010, the cost of computers and related technology (software, internet access charges, etc.) qualifies as higher education expenses for purposes of the rules governing distributions from a Section 529 qualified tuition plan, as long as the beneficiary of the plan is enrolled at an eligible educational institution.

Qualified Transportation Fringe Benefit Increase
The exclusion amount for transportation fringe benefit is increased to $230/month effective starting March 2009 and through 2010 with an annual inflation adjustment.

Child Tax Credit and Other Items
The act extends for 2009 and 2010 the lower, $3,000 income threshold for refundability of the section 24 child credit, meaning more of it is refundable to low-income taxpayers. Also, there is a temporary increase in the earned income tax credit for 2009 and 2010, a one-time payment to persons on fixed incomes not eligible for the making work pay credit and a temporary exclusion of $2,400 of unemployment benefits from taxable income for 2009.

These are only some of the provisions in the new law. If you have questions about these items or any aspects of the new laws, please contact your BMSS CPA.  We will continue to update you and provide additional details associated with these and other tax updates. 

This new legislation does not affect the majority of inpidual taxpayers for their 2008 tax returns due April 15, 2009.  However, for some small businesses, changes in the net operating loss provisions could affect 2008 tax returns.

Material discussed is meant to provide general information and should not be acted on without obtaining professional advice appropriately tailored to your inpidual needs.

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