What Does The Economic Recovery Package Mean For You?

President Obama Signs $787 Billion Economic Recovery Package - Calls it a "Major Milestone on Our Road to Recovery"

Largest Government Stimulus since the Great Depression 

By: The Grassi Tax Team

Yesterday, President Barack Obama signed into law the American Recovery and Reinvestment Act of 2009. This $787 billion package is wide-ranging, adding some new breaks to the tax code and extending other deductions and credits that have expired. It also marks the largest tax and spending program of its kind since the New Deal was enacted by President Roosevelt during the Great Depression.

 

The signing of the bill caps weeks of intense debate in both houses of Congress and with its enactment, the President hopes to save or create 3.5 million jobs.   A little more than one third of the plan represents tax breaks and incentives for businesses and individuals, while approximately two thirds of the plan represents new spending initiatives focusing on healthcare, infrastructure, education and energy, among other areas.

 

Here is a quick rundown of several key highlights affecting both businesses and individuals:

1. Loss carryback lengthened - Businesses with losses can generally carry net operating losses (NOLs) back two taxable years. For 2008, businesses with gross receipts of less than $15 million can carry back NOLs five years, which can potentially result in a tax refund.

2. Section 179 depreciation extended - For the 2008 tax year, businesses could deduct up to $250,000 of business equipment purchases as "Section 179" deductions. That enhanced deduction expired at the end of last year and the Section 179 deduction dropped to $133,000. The new law brings back the $250,000 amount for 2009.

 

3. Bonus depreciation extended - The law also reinstates the incredibly popular 50% "bonus depreciation" for eligible business equipment purchases.  This provision was set to expire at the end of 2008 and will allow companies to write-off 50% of the purchase price of equipment in 2009 - a major tax benefit.

4. New employer hiring incentive - The new law includes a tax credit equal to 40 percent of the first $6,000 of wages paid to employees who are unemployed veterans or "disconnected youth." The latter is defined as individuals between the ages of 16 and 25 who have not been regularly employed or attending school in the past six months.

5. Sales tax deduction for vehicle purchases - For taxpayers within certain income limits, there is a new deduction for state, local and excise taxes paid when buying a new car, light truck or other vehicle through 2009.

6. The "American Opportunity" education tax credit - For 2009 and 2010, the bill would provides taxpayers within certain income limits with a credit of up to $2,500 of the cost of tuition and related expenses paid during the taxable year.

7. Homebuyer tax credit - Last year, a law was passed providing first-time homebuyers with a refundable tax credit that was equivalent to an interest-free loan equal to 10 percent of the cost of a home (up to $7,500). Any amount received generally must be repaid to the government over a period of years. Under the new law, the repayment obligation is eliminated and the maximum amount of the credit increases to $8,000. There are income limits to qualify.

8. The "Making Work Pay" tax credit - For 2009 and 2010, working individuals and families within certain income limits will receive a refundable tax credit of $400 or $800. For employees, this credit will be in the form of reduced withholding from their paychecks. 

9. Help for unemployed individuals - The first $2,400 of unemployment benefits will be exempt from federal income tax for 2009.

 

10. A one-year "AMT patch" - This was put into place for 2009 to prevent millions more individuals from paying the alternative minimum tax.

These are only some of the provisions in the new law. In upcoming issues of The Grassi Advisor, we will provide complete coverage of the stimulus plan and details associated with these and other tax breaks and spending programs in the massive legislation.  We will have separate updates about the following areas:  individual tax breaks; tax breaks for businesses; and energy tax incentives.

 

If you have questions about how the American Recovery and Reinvestment Act of 2009 will affect you, please contact your Grassi tax advisor.