Tax Provisions of the Financial Rescue Package Affecting Individuals And Small Businesses

by Gary Krupa, CPA


Provisions for individuals:

Home purchase credit for first-time homebuyers: A new tax credit for individuals is available for 2008 and later tax returns. If you closed on your home between April 9, 2008 and July 1, 2009, you're entitled to a credit of up to $7,500 (or 10% of the cost of a home for homes under $75,000). To be eligible to claim the credit, you cannot have owned a home you used as your principal residence during the previous three years. The credit must be repaid ratably, without interest, over a fifteen-year period beginning two years after it's claimed. Thus, $500 additional tax must be paid each year starting in 2010. The credit is effectively an interest-free loan from the IRS.

The exclusion for forgiveness of home-mortgage debt income, scheduled to expire after 2009, was extended through 2012 (section 303 of the bill). Examples of situations resulting in forgiveness of debt income are foreclosure and reduction through restructuring. The exclusion applies for up to $2,000,000 in home mortgage debt forgiveness.

The AMT exemption increases to $46,200 for single individuals and $69,950 for married couples filing jointly for 2008. Previously the exemption amounts were $44,350 for single individuals and $66,250 for married couples filing jointly.

There's more ability to take personal tax credits against the AMT. Moreover, the effects of the AMT are mitigated when the AMT is triggered by income from incentive stock options, through a refundable tax credit.

The tax credit for wind and clean coal facilities is extended through 2009.

The solar energy property credit, fuel cell property credit, and microturbine credit is extended through 2016. There's no limit on the credit for solar electric investments. Previously the limit was $2,000.

The "Small wind property" energy credit is extended through 2016. The credit limit is $4,000.

A tax credit for geothermal heat pumps is available, with a limit of $2,000.

The credits for biodiesel and renewable diesel are extended through 2009, but only at 50-cents per gallon, rather than $1.

A new credit for plug-in electric drive cars has been enacted to be in effect through 2010. The credit will range from $2,500 to $7,500 for passenger vehicles and light trucks and up to $15,000 for heavier vehicles. The credit will expire at the end of the first calendar quarter after the quarter in which the total number of qualified plug-in vehicles exceeds 250,000. The credit is available against the AMT.

The tax credit for non-business energy property, including efficient water heaters and so on, is extended through 2009.

The “floor” for the refundability of the child care credit is reduced from approximately $12,050 to $8,500, thus enhancing it. This will allow more low-income people to claim the credit, and increase the size of the credit they can claim.

Other provisions extended through 2009 include:

• Deduction for State and local sales taxes.
• Distributions from an IRA of up to $100,000 may be donated to charity and excluded from income, for people over age 70 1/2.
• Deduction of qualified tuition and related expenses.
• Deduction for certain expenses of elementary and secondary school teachers.
• Additional standard deduction for real property taxes for nonitemizers.
• Basis adjustment for S corporations making charitable contributions.

Provisions for businesses:

Extension and expansion of the research tax credit. All machinery and equipment placed in service in a farming business in 2009 is 5-year property for the depreciation rules.

Enhanced deductions for:

• contributions of food to charitable organizations
• contributions of books and computer equipment to qualifying schools Depreciation provisions benefiting leasehold, restaurant and retail improvements Indian employment credit Qualified Zone Academy Bonds, which subsidize construction of schools in low-income areas

Sources:

CCH http://www.cch.com/press/news/2008/20081003t.asp

Roth & Company, PC http://www.rothcpa.com/archives/004078.php

Tax Act Online http://www.taxactonline.com/




Gary Krupa is a CPA in NY and Arizona, with more than twenty-five years experience providing accounting, tax, audit and computer services to small and medium-size organizations. He’s especially attentive to the needs of his clients. He moved to Rimrock, Arizona in late May 2008. His e-mail address is gkcpa@q.com. More information about his services can be found at
http://www.gkcpa-monopoly.blogspot.com.