American Recovery and Reinvestment Act of 2009

American Recovery and Reinvestment Act of 2009

On February 17, 2009, President Obama signed into law a major spending bill designed to help jump-start the American economy. The Act contains $787 billion in spending programs, including nearly $300 billion in tax relief. Although many of the provisions are retroactive to January 1, 2009, they are also subject to phase-outs at higher income levels, making them unavailable to many taxpayers.Following is a summary of the important tax provisions contained in this massive new legislation.

Individuals

Unemployment compensation benefits received in 2009 are excludable from gross income up to the first $2,400.

The excludable amount of gain on the sale of certain “small business stock” acquired after February 17, 2009 and before 2011 is increased from 50 percent to 75 percent.
Qualified “Section 529” tuition plan program distributions can now be used for computer equipment, computer technology and internet access costs during 2009 and 2010.

The Treasury Department will make one-time payments of $250 to adults who are eligible for benefits under certain social security, Railroad Retirement, Veterans, and SSI programs. Certain retired government workers not covered by social security will also qualify for the payment.

Most individuals who purchase qualified motor vehicles (generally cars, light trucks and SUVs) after the date the law was passed and before 2010 are eligible for a deduction for state and local sales and excise taxes. The deduction is available on the first $49,500 of the purchase price of any one qualified vehicle, but subject to phase-out for higher-income taxpayers.

The 2008 AMT patch is extended to 2009, with slightly higher exemption amounts. The use of nonrefundable personal tax credits against regular tax and AMT liability are both also extended through 2009.

The Making Work Pay Credit will provide eligible individuals with a refundable income tax credit for 2009 & 2010. The credit will be the lesser of (1) 6.2% of earned income or (2) $400 ($800 for joint filers). This credit is subject to phase-out for higher income individuals.
The Earned Income Tax Credit (EITC) is temporarily increased for families with three or more qualifying children.

The Hope Credit is renamed the New American Opportunity Tax Credit, and is temporarily enhanced for 2009 and 2010 by increasing it up to $2,500 per student for the first four years of post secondary education. Course materials will also qualify for the new credit. This credit is subject to phase-out for higher income taxpayers. Tuition paid in late 2008 for 2009 does not qualify for the enhanced credit, but may qualify under pre-act rules.

The First-Time Homebuyer Credit enacted in 2008 was revamped by increasing the amount to a maximum of $8,000 on purchases of principal residences by first-time homebuyers. The new law waives the previously required repayment of the credit for qualified purchases between January 1, 2009 and November 30, 2009, as long as the home is owned and used as a principal residence for 36 months. The availability of the credit is subject to phase-out for higher income taxpayers.

Businesses

The 50-percent first-year bonus depreciation allowed under the 2008 Economic Stimulus Act has been extended through December 31, 2009. The extension is retroactive to January 1, 2009. It would also extend, through 2010, the additional year of bonus depreciation allowed under the 2008 Economic Stimulus Act for property with a recovery period of 10 years or longer, for certain transportation property and for certain aircraft. The enhanced bonus deprecation rules for new vehicles provided by the 2008 Act is also extended through 2009.

The 2008 Economic Stimulus Act increased the amount of Code Sec 179 expensing for 2008 to $250,000 and increased the threshold for reducing the deduction to $800,000.The Act extends the increased 2008 Section 179 amounts for another year, through 2009.

The new Act provides a five-year carry-back of 2008 net operating losses, but only for qualified small businesses that meet certain gross receipts tests. The new law gives these businesses the choice to carry-back NOL’s three, four or five years. The new treatment will apply only to NOL’s for any tax year ending in 2008. If a taxpayer has two tax years that end in 2008, only one of the two years would qualify for the special NOL carry-back benefit. The normal NOL carry-back period, which is generally two years, returns for 2009.

The Act temporarily shortens, from 10 years to 7 years, the holding period for assets subject to the built-in gains tax imposed after a C Corp elects to become an S Corp. This reduction would apply to C Corps that convert to S Corps in tax years beginning in 2009 and 2010.

There are new provisions that enhance COBRA coverage. Laid off workers would pay a portion of the COBRA premium (40 percent) and the former employer would pay the remaining portion of the premium for nine months. The employer would be able to credit its share of the subsidy against wage withholding and payroll taxes. Income thresholds would apply.

Energy and Environment

In addition to the above, there are many new credits available to both individual and business taxpayers, as part of the President’s energy and environmental initiative programs. Such things as plug-in vehicles, residential and business energy-efficiency enhancements, alternative motor vehicles, solar and wind conversions can all qualify for special tax credits.

New California Home Buyer Tax Credit

New California Home Buyer Tax Credit

3/24/2009

California announced it’s own, $10,000 tax credit for any homeowner buying a new home between March 1, 2009 and March 1, 2010 regardless of whether they’re a first-time buyer or not. This comes on top of the federal first-time home buyer tax credit of $8,000 announced by the Obama administration as part of the federal stimulus package. Unlike the federal bill the California home buyer tax credit does not have restrictions on income qualifications, nor do you need to be a first time buyer to participate.

Details of the California Home Buyer Tax Credit

Though greater details on the homebuyer tax credit will be forthcoming, the following provides a brief summary of what SB 15XX authorizes:

A tax credit of up to $10,000 credit (5% of home price or $10k, whichever is less) for the purchase of a newly constructed, previously unoccupied home.

Available March 1, 2009 and good until March 2010, or when funding authority runs out – whichever comes first ($100 million was allocated to program).
Allocated by the state's Franchise Tax Board on a first-come, first-served basis (details still to be worked out).

Paid out to home purchasers over three tax years in equal amounts (i.e. $3300 for 2009, $3300 for 2010, etc.) • Purchasers must reside in the home for at least two years.

There are no income limitations that have to be met by purchasers.
There is no first-time homebuyer requirement.

There is no repayment requirement (unless the purchaser sells, rents out, etc before 2 years expire).

Requirements of the Credit

This tax credit is available for "qualified buyers". This is a taxpayer who purchases a single-family residence, whether detached or attached, that has never been occupied, that is purchased to be the principal residence of the taxpayer for a minimum of two years, and that is eligible for the homeowner's exemption.

The home must be a "qualified principal residence" under the new credit. A qualified principal residence must:
Be a single-family residence, whether detached or attached.

Never have been previously occupied.

Be occupied by the taxpayer for a minimum of two years.

Be eligible for the property tax homeowner's exemption.

Any of the following can qualify if it is your principal residence and is subject to property tax, whether real or personal property: a single family residence, a condominium, a unit in a cooperative project, a houseboat, a manufactured home, or a mobile home.

For over three successive tax years, the total credit allocated among owners that occupy the home must not exceed $10,000. Multiple qualified buyers that occupy the home will be allocated credit based on the amount paid and their percentage of ownership.

Any credit that reduced tax on a tax return must be repaid if the buyer does not occupy the home for at least two years immediately following the purchase date.

New Rules on Unemployment

First $2,400 of Unemployment Benefits Tax Free for 2009

WASHINGTON — All or part of unemployment benefits received in 2009 will be tax free for many unemployed workers, according to the Internal Revenue Service.

“This morning we learned that a record 5.6 million people were receiving unemployment benefits in the middle of March. This underscores the need for the relief provided by the American Recovery and Reinvestment Act, which includes making the first $2,400 of unemployment insurance exempt from tax,” said IRS Commissioner Doug Shulman. “I urge all unemployed workers to take this special tax break into account as they plan their tax withholding and quarterly estimated tax payments for the year. This change offers a helping hand to millions of Americans who are out of work and struggling to make ends meet.”

Under the American Recovery and Reinvestment Act, enacted last month, every person who receives unemployment benefits during 2009 is eligible to exclude the first $2,400 of these benefits when they file their tax return next year. For a married couple, the exclusion applies to each spouse, separately. Thus, if both spouses receive unemployment benefits during 2009, each may exclude from income the first $2,400 of benefits they receive.

The new law doesn’t affect the return taxpayers are filling out now. Unemployment benefits received in 2008 and prior years remain fully taxable.

Unemployed workers can choose to have income tax withheld from their unemployment benefit payments. Withholding on these payments is voluntary. However, choosing this option may help avoid a surprise year-end tax bill or a possible penalty for having paid too little tax during the year. Those who choose this option will have a flat 10 percent tax withheld from their benefits.

Unemployed workers who expect to receive more than $2,400 in benefits this year should consider having tax withheld from their benefit payments in excess of that amount. Those unemployed workers who have already chosen to have tax taken out of their benefits, should consider the $2,400 exclusion in determining whether to continue to have tax withheld.

Use Form W-4V, Voluntary Withholding Request, or the equivalent form provided by the payer to request withholding to begin or end. Form W-4V is also available on IRS.gov or by calling the IRS toll-free at 1-800-TAX-FORM (829-3676).

Related Items:
IRS Information Related to the American Recovery and Reinvestment Act of 2009