American Recovery and Reinvestment Act of 2009
American Recovery and Reinvestment Act of 2009 – What does it mean to you??
The recently enacted "American Recovery and Reinvestment Act of 2009" contains a wide ranging tax package that includes tax relief for both individuals and businesses. Here is an overview of the more widely applicable tax changes.
• Expanded Credit for first time home buyers
• Tax break for new car purchases
• Expanded higher education tax credit
• Incentives to hire unemployed veterans and disconnected youth
• Extension of enhanced small business expenses (Sec. 179)
• Expanded Loss carryback (NOL) for small business
Individual Tax Provisions
"Making Work Pay" credit. The new law provides an individual tax credit in the amount of 6.2% of earned income not to exceed $400 for single returns and $800 for joint returns in 2009 .d 2010. The credit is phased out at adjusted gross income (AGI) in excess of $75,000 150,000 for married couples filing jointly). The credit can be claimed as a reduction in the fount of income tax that is withheld from a paycheck, or through a credit on a tax return. Under the credit, workers can expect to see perhaps $13 a week less withheld from their paychecks starting around June. Next year, the extra take-home pay will go down to around .70 per week.
Economic recovery payment. The new law provides for a one-time payment of $250 to retirees, disabled individuals and Social Security beneficiaries and SSI recipients receiving benefits from Social Security Administration and Railroad Retirement beneficiaries, and to veterans receiving disability compensation and pension benefits from the U.S. Department of Veterans Affairs. The one-time payment is a reduction to any allowable Making Work Pay credit.
Unemployment compensation exclusion. A provision temporarily suspends federal income tax the first $2,400 of unemployment benefits received by a recipient in 2009.
Expanded and revised higher education tax credit. The new law creates a $2,500 higher education tax credit that is available for the first four years of college. The credit is based on 100% of the first $2,000 of tuition and related expenses (including books) paid during the tax year and 25% of the next $2,000 of tuition and related expenses paid during the tax year, subject to phase-out for AGI in excess of $80,000 ($160,000 for married couples filing jointly). 40% of credit is refundable. The new credit temporarily replaces the Hope credit.
Expanded credit for first-time home buyers. Last year, Congress provided taxpayers with a refundable tax credit that was equivalent to an interest-free loan equal to 10% of the purchase of a home (up to $7,500) by first-time home buyers. The provision applied to homes purchased on after April 9, 2008 and before July 1, 2009. Taxpayers receiving this tax credit were required repay any amount received under this provision back to the government over 15 years in Lai installments (or earlier if the home was sold). The credit phases out for taxpayers with TI in excess of $75,000 ($150,000 in the case of a joint return). The new law enhances the credit by eliminating the repayment obligation for taxpayers that purchase homes on or after January 1, 2009. It also extends the credit through the end of November 2009, and bumps up maximum value of the credit from $7,500 to $8,000.
Tax break for new car purchasers. The new law allows taxpayers to deduct State and local dales taxes paid on the purchase of a new automobile, including light trucks, SUVs, motorcycles, and motor homes. The tax break phases out starting with taxpayers earning $125,000 per year ($250,000 for joint returns). The deduction is allowed to both those who itemize their deductions as well as to nonitemizers. However, the deduction cannot be taken by a taxpayer who elects to deduct state and local sales taxes in lieu of state and local income taxes.
Alternative minimum tax (AMT) patch. To hold the number of taxpayers subject to the AMT lay, the new law increases the AMT exemption amounts for 2009 to $46,700 for unmarried individuals, to $70,950 for joint returns, and to $35,475 for married individuals filing separate returns, and allows the personal credits against the AMT.
Business Tax Provisions
Extension of bonus depreciation. Last year, Congress temporarily allowed business to recover costs of capital expenditures made in 2008 faster than the ordinary depreciation schedule aid allow by permitting these businesses to immediately write off 50% of the cost of depreciable property acquired in 2008 for use in the United States. The new law extends this temporary benefit for qualifying property purchased and placed into service in 2009.
Extension of enhanced small business expensing (Section 179). In order to help small finesses quickly recover the cost of certain capital expenses, small business taxpayers may elect to write off the cost of these expenses in the year of acquisition in lieu of recovering these is over time through depreciation. Last year, Congress temporarily increased the amount that businesses could write off for capital expenditures incurred in 2008 to $250,000 and eased the phase-out threshold for 2008 to $800,000. The new law extends these temporary eases for capital expenditures incurred in 2009.
Expanded loss carryback of net operating losses for small businesses. Under pre-Act law, net rating losses (NOLs) may be carried back to the two years before the year that the loss arises carried forward to each of the succeeding twenty years after the year that the loss arises. For 8, the new law extends the maximum NOL carryback period from two years to five years for
Incentives to hire unemployed veterans and disconnected youth. Businesses are allowed to claim a work opportunity tax credit equal to 40% of the first $6,000 of wages paid to employees f one of nine targeted groups. The new law expands the work opportunity tax credit to include two new targeted groups: (1) unemployed veterans; and (2) disconnected youth. Individuals qualify as unemployed veterans if they were discharged or released from active duty from the armed Forces during 2008, 2009 or 2010 and received unemployment compensation for more than four weeks during the year before being hired. Individuals qualify as disconnected youths if they are between the ages of 16 and 25 and have not been regularly employed or attended school in the past 6 months.
Extension of monetization of accumulated AMT and R&D credits in lieu of bonus depreciation. The new law extends the provision contained in the Foreclosure Prevention Act 2008 and allows AMT and loss taxpayers in 2009 to receive 20% of the value of their old MT or research and development (R&D) credits to the extent such taxpayers invest in assets at qualify for bonus depreciation.
Delayed recognition of certain cancellation of debt income. To benefit certain businesses that buy their own debt at a discount, the new law lets the businesses recognize cancellation of debt come ("CODI") over 10 years (defer tax on CODI for the first four or five years and recognize is income ratably over the following five tax years) for specified types of business debt purchased by the business in 2009 or 2010.
Qualified small business stock. The new law increases the exclusion for gain from the sale of certain small business stock held for more than five years from 50% to 75% for stock issued after enactment date and before 2011.
S corp holding period. The new law temporarily shortens the holding period of assets subject to built-in gains tax from 10 years to seven years.
Repeal of IRS's built-in loss rules. The new law provides a prospective repeal of Notice 2008, the controversial IRS guidance which provided that if a bank recognizes a loss from the position of a loan or takes a bad debt deduction under the specific charge-off or reserve methods of accounting after a change in ownership, that loss or deduction will not be treated as a built in loss attributable to the pre-acquisition period.
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The recently enacted "American Recovery and Reinvestment Act of 2009" contains a wide ranging tax package that includes tax relief for both individuals and businesses. Here is an overview of the more widely applicable tax changes.
• Expanded Credit for first time home buyers
• Tax break for new car purchases
• Expanded higher education tax credit
• Incentives to hire unemployed veterans and disconnected youth
• Extension of enhanced small business expenses (Sec. 179)
• Expanded Loss carryback (NOL) for small business
Individual Tax Provisions
"Making Work Pay" credit. The new law provides an individual tax credit in the amount of 6.2% of earned income not to exceed $400 for single returns and $800 for joint returns in 2009 .d 2010. The credit is phased out at adjusted gross income (AGI) in excess of $75,000 150,000 for married couples filing jointly). The credit can be claimed as a reduction in the fount of income tax that is withheld from a paycheck, or through a credit on a tax return. Under the credit, workers can expect to see perhaps $13 a week less withheld from their paychecks starting around June. Next year, the extra take-home pay will go down to around .70 per week.
Economic recovery payment. The new law provides for a one-time payment of $250 to retirees, disabled individuals and Social Security beneficiaries and SSI recipients receiving benefits from Social Security Administration and Railroad Retirement beneficiaries, and to veterans receiving disability compensation and pension benefits from the U.S. Department of Veterans Affairs. The one-time payment is a reduction to any allowable Making Work Pay credit.
Unemployment compensation exclusion. A provision temporarily suspends federal income tax the first $2,400 of unemployment benefits received by a recipient in 2009.
Expanded and revised higher education tax credit. The new law creates a $2,500 higher education tax credit that is available for the first four years of college. The credit is based on 100% of the first $2,000 of tuition and related expenses (including books) paid during the tax year and 25% of the next $2,000 of tuition and related expenses paid during the tax year, subject to phase-out for AGI in excess of $80,000 ($160,000 for married couples filing jointly). 40% of credit is refundable. The new credit temporarily replaces the Hope credit.
Expanded credit for first-time home buyers. Last year, Congress provided taxpayers with a refundable tax credit that was equivalent to an interest-free loan equal to 10% of the purchase of a home (up to $7,500) by first-time home buyers. The provision applied to homes purchased on after April 9, 2008 and before July 1, 2009. Taxpayers receiving this tax credit were required repay any amount received under this provision back to the government over 15 years in Lai installments (or earlier if the home was sold). The credit phases out for taxpayers with TI in excess of $75,000 ($150,000 in the case of a joint return). The new law enhances the credit by eliminating the repayment obligation for taxpayers that purchase homes on or after January 1, 2009. It also extends the credit through the end of November 2009, and bumps up maximum value of the credit from $7,500 to $8,000.
Tax break for new car purchasers. The new law allows taxpayers to deduct State and local dales taxes paid on the purchase of a new automobile, including light trucks, SUVs, motorcycles, and motor homes. The tax break phases out starting with taxpayers earning $125,000 per year ($250,000 for joint returns). The deduction is allowed to both those who itemize their deductions as well as to nonitemizers. However, the deduction cannot be taken by a taxpayer who elects to deduct state and local sales taxes in lieu of state and local income taxes.
Alternative minimum tax (AMT) patch. To hold the number of taxpayers subject to the AMT lay, the new law increases the AMT exemption amounts for 2009 to $46,700 for unmarried individuals, to $70,950 for joint returns, and to $35,475 for married individuals filing separate returns, and allows the personal credits against the AMT.
Business Tax Provisions
Extension of bonus depreciation. Last year, Congress temporarily allowed business to recover costs of capital expenditures made in 2008 faster than the ordinary depreciation schedule aid allow by permitting these businesses to immediately write off 50% of the cost of depreciable property acquired in 2008 for use in the United States. The new law extends this temporary benefit for qualifying property purchased and placed into service in 2009.
Extension of enhanced small business expensing (Section 179). In order to help small finesses quickly recover the cost of certain capital expenses, small business taxpayers may elect to write off the cost of these expenses in the year of acquisition in lieu of recovering these is over time through depreciation. Last year, Congress temporarily increased the amount that businesses could write off for capital expenditures incurred in 2008 to $250,000 and eased the phase-out threshold for 2008 to $800,000. The new law extends these temporary eases for capital expenditures incurred in 2009.
Expanded loss carryback of net operating losses for small businesses. Under pre-Act law, net rating losses (NOLs) may be carried back to the two years before the year that the loss arises carried forward to each of the succeeding twenty years after the year that the loss arises. For 8, the new law extends the maximum NOL carryback period from two years to five years for
Incentives to hire unemployed veterans and disconnected youth. Businesses are allowed to claim a work opportunity tax credit equal to 40% of the first $6,000 of wages paid to employees f one of nine targeted groups. The new law expands the work opportunity tax credit to include two new targeted groups: (1) unemployed veterans; and (2) disconnected youth. Individuals qualify as unemployed veterans if they were discharged or released from active duty from the armed Forces during 2008, 2009 or 2010 and received unemployment compensation for more than four weeks during the year before being hired. Individuals qualify as disconnected youths if they are between the ages of 16 and 25 and have not been regularly employed or attended school in the past 6 months.
Extension of monetization of accumulated AMT and R&D credits in lieu of bonus depreciation. The new law extends the provision contained in the Foreclosure Prevention Act 2008 and allows AMT and loss taxpayers in 2009 to receive 20% of the value of their old MT or research and development (R&D) credits to the extent such taxpayers invest in assets at qualify for bonus depreciation.
Delayed recognition of certain cancellation of debt income. To benefit certain businesses that buy their own debt at a discount, the new law lets the businesses recognize cancellation of debt come ("CODI") over 10 years (defer tax on CODI for the first four or five years and recognize is income ratably over the following five tax years) for specified types of business debt purchased by the business in 2009 or 2010.
Qualified small business stock. The new law increases the exclusion for gain from the sale of certain small business stock held for more than five years from 50% to 75% for stock issued after enactment date and before 2011.
S corp holding period. The new law temporarily shortens the holding period of assets subject to built-in gains tax from 10 years to seven years.
Repeal of IRS's built-in loss rules. The new law provides a prospective repeal of Notice 2008, the controversial IRS guidance which provided that if a bank recognizes a loss from the position of a loan or takes a bad debt deduction under the specific charge-off or reserve methods of accounting after a change in ownership, that loss or deduction will not be treated as a built in loss attributable to the pre-acquisition period.
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