The American Recovery and Reinvestment Tax Act of 2009

Below is a excerpt from the RIA Newsstand: Wednesday 1/21/09

Here at Bell and Company we try to keep everyone up to date on what is going on in the Tax world. Richard Bell thought the following information would be great information to pass along to the blogging community.

On Jan. 16, the House Ways and Means Committee released a summary of the economic recovery package, H.R. 598, “the American Recovery and Reinvestment Tax Act of 2009”—which also includes the Assistance for Unemployed Workers and Struggling Families Act; the Health Insurance Assistance for the Unemployed Act of 2009; and the Health Information Technology for Economic and Clinical Health Act. The package, which would include a number of tax breaks for businesses as well as individuals, is scheduled for markup Thursday, January 22.


Business tax breaks would include:

* An extension of first-year 50% bonus depreciation for 2009;

* An extension of enhanced Code Sec. 179 expensing for 2009 (i.e., $125,000 maximum expensing/$500,000 phaseout ceiling, as adjusted for inflation);

* A 5-year carryback of net operating losses (NOLs), instead of 2-years for 2008 and 2009 (except for those receiving benefits under the Troubled Assets Relief Program (TARP) legislation, Fannie Mae and Freddie Mac);

* A work opportunity tax credit expanded to include two new targeted groups: (1) unemployed veterans; and (2) disconnected youth. An individual would qualify as an unemployed veteran 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. An individual would qualify as a disconnected youth if they are between the ages of 16 and 25 and have not been regularly employed or attended school in the past 6 months;

* A prospective repeal of Notice 2008-83, 2008-42 IRB, the controversial guidance which provided that if a bank recognizes a loss from the disposition 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 (see Federal Taxes Weekly Alert 10/09/2008 and 01/02/2009 for details).


Tax breaks for individuals would include: 

* A refundable tax credit of up to $500 for working individuals and $1,000 for working families, calculated at a rate of 6.2% of earned income, and phased out at adjusted gross income (AGI) in excess of $75,000 ($150,000 for married couples filing jointly). The credit could be claimed as a reduction in the amount of income tax that is withheld from a paycheck, or through a credit on a tax return;

* An expanded earned income tax credit (EITC) that would temporarily increase the EITC to 45% of the family's first $12,570 of earned income for families with three or more children and would increase the beginning point of the phase-out range for all married couples filing a joint return (regardless of the number of children) by $1,880;

* An increase in the eligibility for the refundable child tax credit in 2009 and 2010. While the child tax credit is refundable for 2008 to the extent of 15% of the taxpayer's earned income in excess of $8,500, the bill would eliminate this floor for 2009 and 2010;

* A new American Opportunity tax credit for 2009 and 2010 of up to $2,500 of the cost of tuition and related expenses paid during the tax year. The credit would be 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 a phase-out for AGI in excess of $80,000 ($160,000 for married couples filing jointly). Forty percent of the credit would be refundable; and

* The removal of the repayment requirement for the first-time homebuyer credit under Code Sec. 36 for homes bought after Dec. 31, 2008, and before July 1, 2009.


The bill would also include a bundle of energy tax incentives and bond incentives for distressed areas. Some of these energy provisions would include: 

* An enhanced 20% research & development credit for tax years beginning in 2009 and 2010 for research expenditures incurred in the fields of fuel cells, battery technology, renewable energy, energy conservation technology, efficient transmission and distribution of electricity, and carbon capture and sequestration;

* An extension of the Code Sec. 25C tax credits for improvements to energy-efficient existing homes through 2010. For 2009 and 2010, the amount of the tax credit would be increased from 10% to 30% of the amount paid or incurred by the taxpayer for qualified energy efficiency improvements during the tax year. The property-by-property dollar caps on the tax credit would also be eliminated and an aggregate $1,500 cap would apply to all property qualifying for the credit;

* An extension and modification of the renewable energy production tax credit, extending the placed-in-service date for wind facilities for 3 years through Dec. 31, 2012, and for certain other qualifying facilities for 3 years through Dec. 31, 2013.

* A temporary election to claim the investment tax credit in lieu of the production tax credit;

* A repeal of subsidized energy financing limitation on the investment tax credit;

* Removal of the dollar limitations on certain energy credits, e.g., for qualified small wind energy property ( $4,000 cap); for qualified solar water heating property ($2,000 cap); and qualified geothermal heat pumps ($2,000).

* An increase for 2009 and 2010 in the Code Sec. 30C 30% alternative refueling property credit for businesses (capped at $30,000) to 50% (capped at $50,000); and

* Authorization of addition funds for new clean renewable energy bonds and qualified energy conservation bonds.