American Recovery & Reinvestment Act of 2009
Enacted Feb 17, 2009
- Making Work Pay credit of lesser of 6.2% of earned income or $400 ($800 married filing jointly), for AGI up to $75,000 individuals ($150,000 MFJ), for 2009 and 2010.
- Economic Recovery Payment of $250 for those on fixed incomes (primarily Social Security), one-time payment only.
- AMT Patch for 2009 only, $70,950 exemption for joint filers, $46,700 for single and head of households.
- Enhanced refundable tax credit for first-time home buyers equal to the lesser of $8,000 or 10% of the price of a first home purchased after December 31, 2008 and through November 30, 2009, continues to be subject to phase-outs, no repayment after 36 months in the home, claim credit in 2009 or amend 2008.
- New Car deduction, above-the-line, for state and local sales tax paid on purchases in 2009, phases out for AGI exceeding $125,000 for singles, $250,000 for joint returns.
- Enhanced HOPE Education credit to $2,500 and for all four years of college, $80,000 phase-out for single ($160,000 joint filers), course materials are now eligible as “qualifying” expenses, renamed the “American Opportunity Tax Credit,” 40% of the credit is now refundable under the new law.
- The refundable portion of the “Child Tax Credit” is increased for 2009 and 2010.
- Temporary increase in the “Earned Income Tax Credit” for 2009 and 2010.
- Temporary exclusion of up to $2,400 of unemployment compensation from gross income for 2009 only.
- Section 529 plan distributions are permitted to beneficiaries in 2009 and 2010 to pay for computers and computer technology, including internet access.
- First-year 50% Bonus Depreciation is retroactively extended (to January 1, 2009) through December 31, 2009 for eligible property and through December 31, 2010 for property with a recovery period of 10 years or longer, for property used in the transportation industry and for certain aircraft.
- Section 179 Expensing extended through 2009, $250,000 limit with a threshold of $800,000 for all capital purchases.
- Five year NOL carryback for 2008 losses for qualified small businesses with average gross receipts of $15 million or less, election to carryback either three, four or five years, applies to losses for any tax year that either begins or ends in 2008.
- Work Opportunity Tax Credit extended to “unemployed veterans” and “disconnected youth,” applies to those hired and who begin work in 2009 and 2010.
- Refundable AMT and R&D credits allowed in lieu of taking bonus depreciation.
- Recognition of cancellation of indebtedness income over five years (beginning in 2014) for certain types of business debt repurchased by a business after December 31, 2008 and before January 1, 2011.
- Exclusion of gain from the sale of certain “small business stock” (assets not in excess of $50 million) held more than five years increased from 50% to 75% for sales prior to January 1, 2011.
- S-Corp Built-In-Gain holding period shorted from 10 years to seven years, for C-corps that convert to S-corps in tax years that begin in 2009 and 2010.
- Notice 2008-83 repealed for ownership changes after January 16, 2009 for banks, Code Section 382 loss limitation applies again.
- Reduction in safe-harbor amount from 100% of the prior year tax to 90% for estimated tax payments of individuals whose income primarily (50% or more) comes from a small business (500 or fewer employees, AGI less than $500,000).
- New Markets Tax Credit allocation increased by $5 billion for 2009 and 2010.
- Cobra benefits permitted for an individual involuntarily separated from employment between September 1, 2008 and January 1, 2010, employer pays 65% of the benefit and is reimbursed by reductions to Federal payroll tax withholding remittances.
- Residential Energy Property Credit increased from 10% to 30%, cap raised to $1,500 for 2009 and 2010 in aggregate, $500 lifetime cap eliminated, effective for purchases after December 31, 2008 and before January 1, 2011.
- The Act makes changes to numerous other energy incentive credits, too numerous to list.
Note: This is not a complete list of all the provisions in the Act. Please give us a call to discuss an item in greater depth or to inquire about an item not on this list.
Disclaimer: This document represents a general overview of recent tax developments and should not be relied upon without an independent, professional analysis of how any of these provisions may apply to your specific situation. Any tax information contained in the body of this narrative was not intended or written to be used, and cannot be used, by the recipient for the purposes of avoiding penalties that may be imposed under the Internal Revenue Code or provisions of applicable state or local law.