Stimulus Bill - Selected Individual Tax Provisions
Effective February 17, 2009, President Barack Obama signed into law the American Recovery and Reinvestment Act of 2009 (otherwise known as the "Stimulus Bill"), $787 billion economic stimulus legislation which President Obama said marks a "major milestone on our road to recovery." Tax provisions account for over $288 billion of this amount.
Marilyn Barrett -- a former chair of the Taxation Section of the State Bar of California and the Los Angeles County Bar Association and who works in the Tax Department of Jeffer Mangels Butler & Marmaro LLP -- assists clients on corporate and partnership tax matters and tax controversy matters, and serves as outside general counsel to mid-market public and privately held companies. Ms. Barrett has written and lectured extensively in the tax area, and has prepared an article addressing select tax provisions of the Stimulus Bill of interest to individual taxpayers is below. This memorandum is not exhaustive and you should contact your tax advisor to discuss how the new tax provisions will affect you. For more information contact Marilyn Barrett at 310-201-3532 or mbarrett@jmbm.com. A more extensive summary is available at www.contentpilot.net/jmbmphotos/StimulusPackageAnnouncementweb.html
Modification of Homebuyer Credit
First-time homebuyers are generally allowed a refundable tax credit of 10% of the purchase price of a principal residence. The Stimulus Bill extends that credit to personal residence purchases on or before November 30, 2009 and increases the amount of the credit to $8,000 (up from $7,500) [or $4,000 (up from $3,750) for married taxpayers filing separate returns]. The credit phases out for individuals with modified adjusted gross income between $75,000 and $95,000 ($150,000 and $170,000 for joint filers). The Stimulus Bill also generally waives a 15-year recapture requirement for homes purchased between January 1, 2009 and November 30, 2009 (unless the taxpayer sells the home or ceases to use it as a principal residence within 36 months).
Deduction of Sales Tax and Excise Tax on Purchase of Automobile
The Stimulus Bill allows an "above the line" deduction for qualified motor vehicle taxes paid on the purchase price of a passenger automobile up to $49,500 for automobiles that weigh less than 8,500 pounds. The deduction is phased out for taxpayers with modified adjusted gross income between $125,000 and $135,000 ($250,000 and $260,000 for joint filers). The deduction may be claimed in calculating the taxpayer's regular income tax and alternative minimum tax liability. Qualifying new motor homes are also included.
Alternative Minimum Tax Relief
The Stimulus Bill increases the exemption from alternative minimum tax for 2009 to $70,950 for joint filers and surviving spouses, $46,700 for single taxpayers, and $33,475 for married taxpayers filing separately.
Payroll Tax Credit
The Stimulus Bill provides a $400 payroll tax credit for workers earning up to $75,000. Married couples filing jointly qualify for an $800 credit up to $150,000 of earnings. This item has the single largest cost of any tax provision in the Stimulus Bill, estimated to be $116,199,000,000.
Unemployment Compensation
The Stimulus Bill provides that an individual may exclude up to $2,400 of unemployment compensation from his or her gross income in 2009.
Qualified Tuition Programs
The Stimulus Bill expands the definition of "qualified higher education expenses" for purposes of excludable qualified tuition programs (also known as "529 plans") to include expenses for computer equipment and technology, or for internet access and related services, paid or incurred in 2009 and 2010.
Parity for Qualified Transportation Fringe Benefits
For 2009 and 2010, the Stimulus Bill increases the monthly exclusion for employer-provided transit and vanpool benefits (previously $120) to the same level as the exclusion for employer-provided parking ($230 in 2009).
Individual and Residential Energy-Related Credits
The Stimulus Bill makes changes to the nonrefundable credits available for the purchase of qualified energy efficiency improvements to existing homes (i.e., energy efficient insulation materials, exterior windows and doors, and metal or asphalt roofs). The Stimulus Bill (i) extends the credit to include qualifying property placed in service in 2010, (ii) increases the credit to 30% (up from 10%), subject to a cap of $1,500 and (iii) includes property previously subject to dollar specific credits (i.e., certain fans and hot water heaters).
The Stimulus Bill also expands qualifying expenditures on solar hot water, geothermal and wind property (residential energy efficient property). Effective January 1, 2009, there are no longer caps on the credit for 30% of such qualifying expenditures. There was formerly a $2,000 cap on such credits. Further, there are no longer reductions to the credit for using subsidized energy financing.
The Stimulus Bill also expands credits available for the cost of installing qualified clean-fuel vehicle refueling property at a taxpayer's principal residence. The credit amount has been increased to a rate of 50% of expenditures (up from 30%) and a limit of $2,000 (up from $1,000).
The Stimulus Bill also modifies the system for credits on the purchase of a qualified plug-in electric drive motor vehicle. Purchasers of qualifying vehicles with at least 4 wheels that are less than 14,000 pounds and placed in service after December 31, 2009 will receive credits equal to $2,500 to $7,500, depending on the kilowatt-hour capacity of the battery. Purchasers of qualifying vehicles with 2 or 3 wheels and low-speed vehicles will receive credits equal to 10% of the cost of acquiring the vehicle, capped at $2,500. However, there are phase-outs of the credits once 200,000 new qualified vehicles of a certain manufacturer have been sold for use in the United States after December 31, 2009.
Additionally, the Stimulus Bill treats the alternative motor vehicle credit (the credit already allowable for qualified fuel cell, lean burn technology, hybrid and qualified alternative motor vehicles) as a nonrefundable personal credit which, for tax years beginning in 2009, can be used to offset both regular tax liability and alternative minimum tax liability.
_______________________________________ Marilyn Barrett P.C
JMBM Jeffer, Mangels, Butler & Marmaro LLP Specializing in Corporate Transactions
1900 Avenue of the Stars, 7th Floor Los Angeles, California 90067
MBarrett@jmbm.com
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