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American Recovery and Reinvestment Act of 2009
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On February 17, 2009, President Obama signed into law the "American Recovery and Reinvestment Act of 2009 (H.R. 1)." This economic recovery package is divided among tax cuts, spending programs, and aid to the states, unemployed, schools, and communities. The summary below will focus primarily on the most popular tax provisions of the Act. Economic Recovery Payment There is a new one-time payment of $250 for certain eligible individuals who collect social security benefits, railroad retirement benefits, veterans benefits, and/or supplement security income (SSI). This payment will be automatic for those individuals who qualify. Only one payment is allowed per person even if you collect more than one of the benefits listed above. You do not need to file a tax return to get this one-time payment. This payment is not taxable. Making Work Pay Credit For tax years 2009 and 2010, eligible individuals can get a refundable income tax credit up to $400 ($800 if married filing jointly). The individual MUST have a Social Security number. The credit is gradually phased-out when modified adjusted gross income exceeds $75,000 ($150,000 if married filing jointly). This credit is also reduced by individuals who were eligible for the one-time $250 economic recovery payment described above. First-Time Homebuyer Credit Up to $8,000
If you are considered to be a first-time homebuyer, you can get a refundable credit up to $8,000 ($4,000 if married filing separately). The home MUST be purchased between January 1, 2009 and November 30, 2009. Click here for more details on the first-time homebuyer credit for homes purchased in 2009. Sales Tax Deduction for Certain NEW Vehicles If you purchase a NEW (not used) qualified motor vehicle between February 17, 2009 and December 31, 2009, you may be able to deduct the sales tax above-the line (without itemizing deductions). It only applies to the state or local sales or excise tax on the first $49,500 of the purchase price of EACH vehicle purchased. You may purchase an unlimited number of vehicles and claim this deduction on a per vehicle basis. The deduction is gradually phased-out when modified adjusted gross income exceeds $125,000 ($250,000 if married filing jointly). The deduction is completely eliminated when modified adjusted gross income exceeds $135,000 ($260,000 if married filing jointly). A "qualified motor vehicle" is a NEW passenger automobile or light truck, or motorcycle with a gross vehicle weight rating (GVWR) of 8,500 pounds or less, or a NEW motor home. You MUST be the first owner of the vehicle. Some Unemployment Compensation Non-Taxable For tax year 2009, the first $2,400 of unemployment compensation benefits are excluded from income. Education Credit - Hope Credit Expanded and Renamed For tax years 2009 and 2010, the Hope Credit has been renamed the "American Opportunity Tax Credit." The credit can be up to $2,500 and up to $1,000 of that credit amount may be refundable. The credit now applies to the first 4 years of post-secondary education in a degree or certificate program. The credit is calculated by taking 100% of the first $2,000 of qualified educational expenses and 25% of the next $2,000 of such expenses. The credit is gradually reduced if your modified adjusted gross income (MAGI) exceeds $80,000 ($160,000 if married filing a joint return) and is completely eliminated if your MAGI exceeds $90,000 ($180,000 if married filing a joint return). Refundable Child Tax Credit For tax years 2009 and 2010, the refundable portion of child tax credit will be calculated using earned income in excess of $3,000. For tax year 2008, earned income had to be in excess of $8,500 to calculate any refundable portion of the child tax credit. Earned Income Credit The Earned Income Credit percentage for families with 3 or more qualifying children increases for tax years 2009 and 2010. The NEW maximum earned income credit for tax year 2009 for 3 or more qualifying children is $5,657. Also, the threshold phase-out amounts for married couples filing jointly is increased $5,000. For more information on earned income credit amounts for 2009, click here. Alternative Minimum Tax (AMT) Patch for One Year For tax year 2009, the AMT exemption amounts are increased to:
For tax year 2009, the nonrefundable personal credits may offset AMT as well as regular income tax. Tax-exempt interest on private activity bonds issued in 2009 and 2010 will NOT be subject to AMT. Depreciation and Section 179 Expensing The 50% bonus depreciation and AMT depreciation relief are extended for one year and expire on December 31, 2009. The Section 179 expensing limit of $250,000 and starting phase-out amount of $800,000 are extended for one year and expire on December 31, 2009. The $8,000 increase in allowable first-year depreciation for a passenger automobile that is considered "qualified property" is extended for one year and expires on December 31, 2009. Net Operating Losses (NOL's) A 2008 net operating loss can now be carried back up to five years. An eligible business may elect a three, four, or five year carryback period under Internal Revenue Code Section 172(b)(1)(H) instead of the current two-year carryback period. This election must be made by the due date of the tax return (including extensions). It is effective for tax years ending in 2008, or if an election is made, for tax years beginning in 2008. Energy Credits Several energy credits have been extended and expanded. Below is a summary of some of those credits: Nonbusiness Energy Property Credit The nonbusiness energy property credit is available to an individual's primary residence and is modified and increased in the following ways under the new Act:
Various changes have been made to the standards that property must meet to qualify for the nonbusiness energy property credit. These changes will take effect for property placed in service AFTER February 17, 2009, except for the change regarding "biomass fuel stoves." Insulation must meet the prescriptive criteria for that material or system established by the 2009 International Energy Conservation Code, as in effect on February 17, 2009. Exterior Windows, Skylights, and Doors must have a U factor equal to or below 0.30 and a solar heat gain coefficient (SHGC) of 0.30. Electric Heat Pumps must meet the following standards:
Central Air Conditioners must meet the following standards:
Natural Gas, Propane, or Oil Water Heaters must have either an energy factor of at least 0.82 or a thermal efficiency of at least 90%. Biomass Fuel Stoves that burn biomass fuel to heat a dwelling unit that the taxpayer uses as a residence, or to heat water for use in the residence, and that has a thermal efficiency rating of at least 75%. This is effective January 1, 2009. Furnaces and Boilers may fall into six separate categories:
Residential Energy Efficient Property Credit Limitations (REEP) Individual taxpayers are allowed a nonrefundable personal tax credit, known as the residential energy efficient property (REEP) credit, for 30% of expenditures made during the tax year for qualified solar water heating, geothermal heat pump, fuel cell, small wind energy, and solar electric property. Previously, the REEP credit for a tax year was limited to:
There is no dollar limit for solar electric property after year 2008. The new law eliminates the REEP credit caps for qualified solar water heating, geothermal heat pump, and small wind energy property, while retaining the credit cap for qualified fuel cell property. Effective for tax years beginning after December 31, 2008. View the Entire Act (Tax Bill) Passed By U.S. Congress |
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