HR 3548 more than a Tax Credit of $6500.

November 15, 2009

HR 3548 more than a Tax Credit of $6500.

New home owners still have the chance to get that little pot of gold out there from Ucle Sam. The $8000 first-time home buyers credit will be extended until on or before June 30, 2010 with a Purchase and Sale Agreement in hand by April 30, 2010. You lucky dogs which can take advantage of this. However, if your home closes after November 30, 2009 do not expect to get a tax credit amended on your 2008 income tax return. You like everyone else will now have to wait until your 2009 income tax return is filed.

This might be good for taxpayers who in 2008 may not have qualified for the credit and been disappointed and not purchased a home. But the annual income limits have risen to $125,000 for individuals and for joint filers the amount has gone up to $225,000 for qualifying for the full credit. But another twist in your favor if you have a slightly higher income level is that the qualifying levels phase out completely at the individual in the $145,000 level and a couple the phase out level is at the $245,000 level.

So if you are above those levels individually but have a sweetheart get the matrymonial ceremony in place by the end of the year. Then again, maybe it might be better not to. Maybe the split level where one would qualify slightly and the other one would not qualify or maybe would qualify completely. You will have to do the math on this one. Or email me and maybe I could figure it out for you.

A one year extension for the military if you as a member of the Armed Services have served outside of the United state for a minimum of 90 days during the January 1, 2009 to May 1, 2010 period.

Include your HUD statement with your Form 1040 or 1040X amended return.

Sorry but you know must be 18 years of age to get this gig.

That second home or vacation home does not count. This must be your primary residence.

First time homebuyers may be eligible for an $8,000 refundable tax credit and other homebuyers who have lived in their current residence for five of the last eight years may qualify for a $6,500 refundable tax credit.

For other restrictions see H.R. 3548 The Worker, Hoemownership and Business Assistance Act of 2009.


This new residence for former home owners credit may help in you getting what you need and what the economy needs far more than the first-time home ownership credit did.

Prior homeownership usually means you are stable and might have some cash to throw around. Need new drapes. No problem. New rug. No Problem. Check book has the money from the old house. etc. etc. What is really happening here is the government is trying to have you loosen your checking account to stimulate the economy and notably for the benefit of the construction and durable goods industry.

But I would like you to completely fool the IRS. Do buy improvements for your home but make sure they pass the energy star test. Keep in mind you have a limitation of $500 for some of the home improvements and a $1500 limitation on others. Higher limits for specialized solar power should be looked at. But do not dispare the limitations are annual and you can do another project in the next year for another $500 etc. You really should consult your accountant or tax advisor for more specific information on these improvements since they are as I call them “simplistically complex”. The energy star information for your stoves and refrigerators is given to the manufacturer but a credit is given for your heater if replaced and an energy star. The lowest cost is also the best. A tedious task of caulking around the siding gives immense returns. If affording new drapes is out of the question at least buy a caulking gun and “drape” your house to shut the heat from escaping and the heat from coming inside. Loosen up your house once in awhile by opening the doors though for circulation. You can get a tax credit besides for the cost of caulk. Your labor does not count.

The actual next best way would be to invest in some solar panels or some type of wind power. Check with your local taxing district and other authorities first. You may have to get a permit before installation or construction. Also check with your local utility. You may have to get a check from them for producing electricity for them. There are specific requirements which all utilities have and not following them would mean you may be missing out on your rebate check. For instance, you may have to buy a meter to help in determining how much is going back out onto the grid. Some utility companies may have different rates for different hours of the day and you will definitely want to take advantage of these as well. Do not forget to consider your state income tax as an additional credit source. All states vary on this issue. From none for most of the states without a state income tax for substantial amounts. Depending upon your income you may need to know if the credit is available for you as a refundable or is it a non-refundable credit. Also, if you are temporarily in a state or seasonally will you get the credit. All of these considerations are important. What you should not do is guess that you need this done and assume you will get a credit. It is a function of responsibility on your part to assess all aspects of the taxes concerning improvements and solar with your tax advisor before any purchases are made. It is really a “simplistically complex” credit.



Junker Credit

July 18, 2009
Junker Credit

Ford Clunker Calculator

GM Clunker Calculator

A $3500 or $4500 junker credit. That is the question. Whether you trade up by a 4, 2, 1, or NA MPG increase for $3500 tax credit or 10, 5, 2 increase and a $4500 junker credit really is the question. The above web addresses will help in determining what combination your particular situation may dictate.

The above would be a web address with a grid list. Look at this grid also.

Purchasing or getting a qualified leased car which is new. But it must also be a more fuel-efficient car or truck.

WARNING: This credit allowance of a total of $1 Billion program is good until November 1, 2009 or until the money runs-out. So effectively you need to treat this as grant money and know that grant money does run out eventually and the ones in line first get the money first. And Yes, November 1, 2009 does land on a Sunday but the law specifically ends on a Sunday for the grants.

What are the qualifications for this program. What vehicles qualify.

* The trade-in vehicle must meet the following criteria.

* Have been manufactured less than 25 years before the date you trade it in.

* Have a “new” combined city/highway fuel economy of 18 miles per gallon or less.

* Be in drivable condition.

* Be continuously insured and registered to the same owner for the full year preceding the trade-in.

* If leased the lease must be for a five year period of time minimum.

As an example Ford, Lincoln and Mercury have 20 vehicles together which qualify as new or leased vehicles which may give you a $3500 or $4500 purchasing credit. Notice that the cost of a vehicle cannot exceed $45,000.

Will the full value of the clunker be a fair value. I do not believe it will be fair at all. If you present your purchase first and get the deal and then bring in your clunker for the end of the deal. At the present time the scrap metal value is low. Steel is still at a high price in the warehouses and the price of steel spot is lower. Ship owners are stalling on retrofiting their boats and waiting for the price of steel to come down. Your car would be just reducing the spot price further and stalling the ship yard work until a later day and time. Could this be further than November 1. This is a question which you will have to ask. This boat owner stall has already lasted for over one year. Will it continue. I believe it will. The price of fish is lower. The price of the cabin is lower. The price of shipping and the amount of tonnage shipped is lower.

One caveat is that a truck which does not have an EPA fuel economy number must be from a model year of 2001 or earlier. Scrap metal and $3500. Even with this qualification satisfied look at the powertrain to see if your vehicle also would qualify. Again, the value of the purchase cannot exceed $45,000.

Remember to negotiate on all aspects of your vehicle. Check the weight of the vehicle. Look at the spot price of steel for the day. I do not know which day the spot price is generally better if any. Call a commodities broker and ask. Maybe a seasonal swing occurs each year. Rough weather in the fall perhaps might be a heavy steel purchasing time.

Combine your purchase with a hybrid vehicle tax credit. But also keep in mind that hybrid vehicles have a maximum life also. New year vehicle purchases end when 60,000 vehicles are purchased. The Prius expired last year for its credit. Other models which came out after the Prius are still available. Do not forget to look at Diesel Engine models as well. Don’t forget to include the sales tax of the general sales tax for your state as an add-on for your standard deduction amount on your federal income tax return. Some states may also provide an additional standard amount for the auto sales tax purchase as well. With the sales tax standard deduction a maximum purchase price is $49,500 and a phased out over modified AGI range of $125,000-$135,000 ($250,000-$260,000 if married filing jointly) may need to be looked at as well. The standard deduction applies only to purchases made after February 16, 2009, and before January 1, 2010. Caution says to keep track of the dates. Or better yet make sure you purchase prior to November 1, 2009 or before the Junker Credit runs out and keep the purchase price below $45,000 or negotiate the purchase price down to $45,000 or below.

If all else fails, buy a used car and wait for a hydrogen fuel source vehicle. A new hydrogen plant to be built was announced last week for Arizona.

Don’t forget about the plug-ins. Oh, are they available as of yet. Too late for this credit.

Or just give up and tell your boss you need to apply for the $20 per month credit for riding your bicycle to work every day under the Commuter Transportation Benefits. Restrictions do apply, yet they are for providing for the reimbursement by an employer to an employee for reasonable expenses for the purchase of a bicycle, improvements, repair, and storage if he bicycle is regularly used for commuting. Hopefully you commute one mile. Maybe with a unicycle it is $10 per month. I have not specifically looked to see if unicycles are considered a qualified alternative mood of transportation. If it is then roller blades or skateboards should be included if they are not motorized.

Good Luck!!


U.S. Constitution and California Territory

July 18, 2009

Dear Washington State Congressional Delegation

Subject:  Constitution in relationship to California now being a Territory and not a State/they violated the Constitution for the requirement to remain a State.

California has to be a territory and not a State.  Article I, Section 10 of the Constitution states:

“No State shall . . . emit any bills of credit . . . .”

This is one thing which was happening rampantly in the Pre-Revolutionary timeframe.   On an insistance by John Adams and by James Madison and knowing that emitting a bill of credit was extremely disruptive to commerce and personal business transaction this was a requirement which was included into the U.S. Constitution.  I as of yet am unable to see what King George was doing with this same technique.  If I were to read the Declaration of Indepence I am sure I would also see this type of transaction pre-eminant in King George’s time.  This could have been due partially because of the time travel consequences.  Our immediate cashing of checks via electronics eliminates this as a necessity.

Starting on July 2, 2009, IOU’s from California were submitted for payment to vendors.  This is extremely disruptive to the economy – state and national.

You need to stand up on the floor of the House and immediately demand that all California Representative step down out of the House since they are not to be represented in the House since they are no longer a “State” because their state has violated the U.S. Constitution in Article I, Section 10. 

1) California then as a Territory can collect all equivalent federal monies to balance their budget and then request permission to reenter as a State.  Their budget should be balanced within a few months time. 

2)  This would immediately change the balance of power in the House if some of the Blue Dogs want to vote with the Republicans.

3)  This huge spending mix will stop immediately.

4)  Otherwise, welfare recipients and illegal immigrants will come to Washington State and sign up for welfare and other Washington State benefits because we have the lowest residency requirements and the highest welfare payout amount.  The next closest state with better benefits would be New York State but the traveling distance is greater.

5)  Our State budget would go from $9 Billion to maybe $20 Billion over budget instantly for the biennium.

6)  The other solution would be for the federal government to bail out California from their $26 Billion deficit projection and thus eliminating the continuing process of a IOU program for California taxpayers.

Please advise as to what you will be doing.  Please announce this on the Floor of the House immediately.  A Point of Order statement on the Floor takes precedence over all other orders of business.  This is a Constitutional issue and their is another time when disruption in the House happened.  This was prior to the Civil War and all of the South left and President Lincoln ordered troops to arrest and jail all members of Congress who would not meet in the House.   Then another time was when General Washington saw a problem with the Confederation of the United States.  The next step if the Constitution cannot be abided by might be that the military General for the Army to take control.  This is his duty if he sees that the U.S. Constitution is being violated.   A legal coupe if you will.  Let’s follow the Constitution and avoid having our Army General called to his responsibility of “Protecting and Defending the Constitution” as is his sworn duty before God and Country.  If the Four Star General does not do this then the Three Star General must arrest all other Three and Four Star Generals and do the same.  If not then are we going to proceed down to a Private performing this duty.

Please advise.

Recovery and Reinvestment Act of 2009

February 20, 2009

As you all might know by now the Act is stuffed with little goodies.  Some good and some bad.  Particular target industries such as the real estate market are included.  Education HOPE Credit is changed to the American Opportunity Credit and increased to $2500 and available for a four year period after high school.

First-time homebuyers (those who have not had a home in the last three years can now get a $8,000 credit if a house is purchased after 01/01/09 otherwise the old rules stay.  Income limitations do apply the same as with the old law. 

The big one is the Business capital gains relief.  A small business owner can exclude up to 75% of the capital gains on the sale of equipment if he/she has owned the business for the last five years.  My suggestion is get rid of the old equipment and buy some new equipment which would be more efficient.   Some businesses may not have to pay capital gains anyways in they are in the 15% tax bracket for personal income anyways.  Warning:  Will still have to claim as ordinary income the recapture of depreciation.  Recapture is not a capital gain amount but still carries on Form 4797 as an ordinary income amount.

I note the complexity of the bill because a NewHire Tax Credit is given for unemployed vetereans and “disconnected youth”.  The disconnected youth ideally should be going to college but with the new American Opportunity credit available only in the first four years after high school the disconnected youth will be in affect “disenfranchised” from the American Opportunity Credit because of the need to become employed.  The credit to the employer is equivalent to a 40 percent credit for th efirst $6,000 of wages paid to these two groups.

Below please find one of my tax advisors who is independent who I go to for continueing education for my Enrolled Agent designation.  Joy Wilen from Vancouver is a great speaker and extremely interesting to have as a speaker for the need of being and getting continueing education requirements satisfied by the Internal Revenue Service.


Following are highlights of the individual tax changes in the American Recovery and Reinvestment Act of 2009 (the Recovery Act) signed into law by the President on Feb. 17, 2009.


Making Work Pay Credit

New law

The Recovery Act provides eligible individuals with a refundable income tax credit for tax years beginning in 2009 and 2010. Code Sec. 36A , as added by Act Sec. 1001(a) 

The credit is the lesser of (1) 6.2% of an individual’s earned income or (2) $400 ($800 for a joint return). Code Sec. 36A(a) 

For these purposes, the earned income definition is the same as for the earned income tax credit with two modifications:

(a) it does not include net earnings from self-employment which are not taken into account in computing taxable income; and

(b) it includes combat pay excluded from gross income under Code Sec. 112 .

Code Sec. 36A(d)(2)The credit is phased out at a rate of 2% of the eligible individual’s modified AGI above $75,000 ($150,000 for a joint return). Code Sec. 36A(b)


The credit is reduced by any payment received by the taxpayer under Recovery Act Sec. 2201 or any credit allowed to the taxpayer under Recovery Act Sec. 2202 (these are recovery payments under the Veterans Administration, Railroad Retirement Board, and the Social Security Administration and credit for certain government workers, as discussed below). Code Sec. 36A(c) The failure to reduce the making work pay credit by the amount of such payments or credit, and the omission of the correct TIN (see below), are clerical errors. Code Sec. 6213(g)(2)(N) This allows IRS to assess any tax, resulting from such failure or omission without the requirement to send the taxpayer a notice of deficiency allowing the taxpayer the right to file a petition with the Tax Court. (Conference Agreement) An eligible individual is any individual other than: (1) a nonresident alien; (2) an individual with respect to whom another may claim a dependency deduction for a tax year beginning in a calendar year in which the eligible individual’s tax year begins; and (3) an estate or trust. Code Sec. 36A(d)(1)(A) An individual is not eligible if he does not include his social security number on the return. For joint filers, this requirement is met if the social security number of one of the spouses is included on the return. Code Sec. 36A(d)(1)(B) Any credit or refund allowed or made to an individual under this provision is not taken into account as income and is not taken into account as resources for the month of receipt and the following two months for purposes of determining eligibility of the individual or any other individual for benefits or assistance, or the amount or extent of benefits or assistance, under any Federal program or under any State or local program financed in whole or in part with Federal funds. Act Sec. 1001(c)It is anticipated that taxpayers’ reduced tax liability under the provision will be expeditiously implemented through revised income tax withholding schedules produced by IRS. These revised schedules should be designed to reduce taxpayers’ income tax withheld for each remaining pay period in the remainder of 2009 by an amount equal to the amount that withholding would have been reduced had the provision been reflected in the income tax withholding schedules for the entire tax year. Conference Report 

Economic Recovery Payment to Recipients of Social Security, SSI, Railroad Retirement and Veterans Disability Compensation Benefits

The Recovery Act provides a one-time payment of $250 to retirees, disabled individuals and SSI recipients receiving benefits from the Social Security Administration, Railroad Retirement beneficiaries, and disabled veterans receiving benefits from the U.S. Department of Veterans Affairs. To be entitled to the $250 payment, the individual must have been eligible for one of the four benefit programs for any month during the three-month period ending with the month which ends before the month that includes the Feb. 17, 2009 date of enactment. Thus, to be entitled to the payment, the individual must have been so eligible during November or December of 2008 or January of 2009. Act Sec. 2201The one-time payment is a reduction to any allowable Making Work Pay credit (see above). Treasury must begin disbursing economic recovery payments as soon as practicable, but no later than June 17, 2009 (120 days after date of enactment).



Refundable Credit for Certain Federal and State Pensioners

Effective Feb. 17, 2009, the Recovery Act provide a one-time refundable tax credit of $250 in 2009 to certain government retirees who are not eligible for Social Security benefits. This one-time credit is a reduction to any allowable Making Work Pay credit (see above). Act Section 2202

Increase in Earned Income Tax Credit

New law

The Recovery Act increases the EITC credit percentage for families with three or more qualifying children to 45% for 2009 and 2010. Code Sec. 32(b)(3) , as amended by Act Sec. 1002(a)For example, in 2009, taxpayers with three or more qualifying children may claim a credit of 45% of earnings up to $12,570, resulting in a maximum credit of $5,656.50.

The Recovery Act also increases the threshold phaseout amounts for married couples filing joint returns to $5,000 above the threshold phaseout amounts for singles, surviving spouses, and heads of households) for 2009 and 2010 (subject to a further increase in 2010 for inflation). Code Sec. 32(b)(3)

Refundable Child Credit Eased

Currently, a taxpayer receives $1,000 tax credit for each qualifying child under the age of 17. To the extent the child credit exceeds the taxpayer’s tax liability, the taxpayer is eligible for a refundable credit (the additional child tax credit) equal to 15% of earned income in excess of a threshold dollar amount (the earned income formula). The threshold dollar amount was to have been $12,050 for 2008, as indexed for inflation. However, for the 2008 tax year, the Emergency Economic Stabilization Act modifies the earned income formula for the determination of the refundable child credit to apply to 15% of earned income in excess of $8,500. For 2009, the earned income formula for the determination of the refundable child credit is 15% of earned income in excess of $12,550 (as indexed for inflation).


The change to $8,500 for 2008 is pro-taxpayer in that in can result in a larger credit than could have been the case had the figure been $12,050.

Families with three or more children may determine the additional child tax credit using the “alternative formula,” if this results in a larger credit than determined under the earned income formula. Under the alternative formula, the additional child tax credit equals the amount by which the taxpayer’s social security taxes exceed the taxpayer’s earned income credit.


New law

The Recovery Act modifies the earned income formula for the determination of the refundable child credit to apply to 15% of earned income in excess of $3,000 for tax years beginning in 2009 and 2010. Code Sec. 24(d)(4) , as amended by Act Sec. 1003(a)


New American Opportunity Tax Credit

New law

The Recovery Act modifies the Hope credit for tax years beginning in 2009 or 2010. Code Sec. 25A(i) , as amended by Act Sec. 1004(a)The modified credit is referred to as the American opportunity tax credit. The credit is up to $2,500 per eligible student per year for qualified tuition and related expenses paid for each of the first four years of the student’s post-secondary education in a degree or certificate program. The modified credit rate is 100% on the first $2,000 of qualified tuition and related expenses, and 25% on the next $2,000 of qualified tuition and related expenses. Code Sec. 25A(i)(1) The definition of qualified tuition and related expenses is expanded to include course materials. Code Sec. 25A(i)(3) The credit is available with respect to an individual student for four years, provided he has not completed the first four years of post-secondary education before the beginning of the fourth tax year. Code Sec. 25A(i)(2) The credit is phased out ratably for taxpayers with modified AGI between $80,000 and $90,000 ($160,000 and $180,000 for joint filers). Code Sec. 25A(i)(4) The credit may be claimed against AMT. Code Sec. 25A(i)(5) Subject to an exception, forty percent of a taxpayer’s otherwise allowable credit is refundable. No portion of the credit is refundable if the taxpayer claiming the credit is a child subject to the kiddie tax under Code Sec. 1(g) . Code Sec. 25A(i)(6) The Recovery Act of 2009 requires IRS to conduct two studies and submit a report to Congress on their results not later than Feb. 17, 2010: a study on how to coordinate the Hope and Lifetime Learning credits with the Pell grant program; and a study on requiring students to perform community service as a condition of taking their tuition and related expenses into account for purposes of the Hope and Lifetime Learning credits. Act Sec. 1004(f)


Increased Transit and Vanpool Transportation Fringe Benefits

An employee can exclude qualified transportation fringe benefits provided by an employer from his gross income and from his wages for payroll tax purposes. These include parking, transit passes, vanpool benefits, and qualified bicycle commuting reimbursements. For 2009, up to $230 per month of parking benefits and up to $120 per month of transit and vanpool benefits (as indexed for inflation) are excludable from income.

New law

For months beginning on Mar. 1, 2009 and before Jan. 1, 2011, the Recovery Act increases the monthly exclusion for employer-provided transit and vanpool benefits to the same level as the exclusion for employer-provided parking. Code Sec. 132(f)(2) , as amended by Act Sec. 1151

Computers as Education Expenses under 529 Plans

A person can make nondeductible cash contributions to a qualified tuition program (QTP, or 529 plan) on behalf of a designated beneficiary. The earnings on the contributions build up tax-free and distributions from a QTP are excludable to the extent used to pay for qualified higher education expenses. A QTP is a tax-exempt program established and maintained by a state (including a state agency or instrumentality), or one or more eligible educational institutions (including private ones) under which a taxpayer may: (1) buy tuition credits or certificates on behalf of a designated beneficiary which entitle the beneficiary to a waiver or payment of qualified higher education expenses—i.e., a prepaid educational services account, or (2) make contributions to an account set up to meet the designated beneficiary’s qualified higher education expenses—i.e., an educational savings account. This option is available only for state (or state agency or instrumentality) programs.

Qualified higher education expenses for QTP purposes are: (a) tuition, fees, books, supplies, equipment required for the enrollment or attendance of a designated beneficiary at an eligible educational institution, and expenses for special needs services; and (b) room and board costs (subject to a limit) for students who are at least half-time.

New law

Under the Recovery Act, expenses paid or incurred in 2009 or 2010 for the purchase of any computer technology or equipment or Internet access or related services qualify as qualified education expenses under QTPs if such technology, equipment, or services are to be used by the QTP beneficiary or his family during any of the years the beneficiary is enrolled at an eligible educational institution. Code Sec. 529(e)(3)(A)(iii) , as amended by Act Sec. 1005(a)Expenses for computer software designed for sports, games or hobbies do not qualify under Code Sec. 529(e)(3)(A)(iii) unless the software is predominantly educational in nature. Code Sec. 529(e)(3)(A)(iii)  

First-time Homebuyer Credit Eased

For qualifying purchases of principal residences in the U.S. after Apr. 8, 2008 and before July 1, 2009, eligible first-time homebuyers may claim a refundable tax credit equal to the lesser of 10% of the purchase price of a principal residence or $7,500 ($3,750 for married individuals filing separately).

A taxpayer is considered a first-time homebuyer if he (or spouse, if married) had no present ownership interest in a principal residence in the U.S. during the 3-year period before the purchase of the home to which the credit applies.


Because only prior ownership in a principal residence is considered, it’s possible for a taxpayer who already owns a vacation home to claim the new credit, if he otherwise qualifies. For example, a taxpayer whose principal residence for at least three years has been a rental apartment in the city, and who owns a seaside home, could claim the credit for the purchase of a new principal residence if his modified AGI doesn’t exceed the phaseout levels discussed below.

Eligible first-time homebuyers who purchase a principal residence after Dec. 31, 2008, and before July 1, 2009, may elect to treat the purchase as made on Dec. 31, 2008.

The first-time homebuyer credit phases out for individual taxpayers with modified AGI between $75,000 and $95,000 ($150,000-$170,000 for joint filers) for the year of purchase.

The credit for new homebuyers is recaptured ratably over fifteen years, with no interest charge, beginning with the second tax year after the tax year in which the home is purchased. For each tax year of the 15-year recapture period, the credit is recaptured as an additional income tax amount equal to 6 2/3% of the amount of the credit. This repayment obligation may be accelerated or forgiven under certain exceptions.


In other words, the credit for new homebuyers is the equivalent of a long-term interest-free loan from the government.



New law

The Recovery Act extends the credit so that it applies to purchases before Dec. 1, 2009. Code Sec. 36(h) , as amended by Act Sec. 1006(a)In addition, it waives the recapture of the credit for qualifying home purchases after Dec. 31, 2008. This waiver of recapture applies without regard to whether the taxpayer elects to treat the purchase in 2009 as occurring on Dec. 31, 2008. If the taxpayer disposes of the home or the home otherwise ceases to be the principal residence of the taxpayer within 36 months from the date of purchase, the pre-Recovery Act 2009 rules for recapture of the credit apply. Code Sec. 36(f)(4)(D) The Recovery Act also increases the maximum homebuyer credit to $8,000. Code Sec. 36(b)The Recovery Act also provides that no D.C. homebuyer credit is allowed to any taxpayer with respect to a 2009 residence purchase if a credit is first-time homebuyer credit is allowable to the taxpayer under Code Sec. 36 . Code Sec. 1400C(e)(4)


Partial Exclusion of Unemployment Compensation

An individual must include in gross income any unemployment compensation benefits received under the laws of the U.S. or any State.

New law

Under the Recovery Act, up to $2,400 of unemployment compensation benefits received in 2009 are excluded from gross income by the recipient. Code Sec. 85(c) , as amended by Act Sec. 1007

New Temporary Deduction for Sales and Excise Taxes on Car Purchases

Taxpayers who itemize deductions may elect to deduct state and local general sales and use taxes instead of state and local income taxes, for tax years beginning before 2010.

New law

For purchases on or after Feb. 17, 2009 and before Jan. 1, 2010, the Recovery Act provides a deduction for qualified motor vehicle taxes. It expands the definition of taxes allowed as a deduction to include qualified motor vehicle taxes paid or accrued within the tax year. Code Sec. 164(b)(6) , as amended by Act Sec. 1008 The deduction generally is allowed to itemizers. It also is allowed to those claiming the standard deduction. Code Sec. 63(c)(1)(E) Qualified motor vehicle taxes are State or local sales or excise taxes imposed on the purchase of a qualified motor vehicle. Code Sec. 164(b)(6)(A) Only taxes on that portion of the cost of a qualified motor vehicle not exceeding $49,500 ($24,750 for a married person filing separately) may be deducted. Code Sec. 164(b)(6)(B) The amount of sales or excise taxes that may be treated as qualified motor vehicle taxes is phased out ratably for a taxpayer with modified AGI between $125,000 and $135,00 ($250,000 and $260,000 on a joint return). Code Sec. 164(b)(6)(C) A qualified motor vehicle is a (1) passenger automobile, light truck or motorcycle the gross vehicle rating of which is not more than 8,500 pounds and (2) a motor home the original use of which commences with the taxpayer. Code Sec. 164(b)(6)(D)

The deduction for qualified motor vehicle taxes is not available to a taxpayer who elects to deduct state and local sales and use taxes in lieu of income taxes as an itemized deduction. Code Sec. 164(b)(6)(F) The deduction for qualified motor vehicle taxes is allowed in computing the AMT. Code Sec. 56(b)(1)(E)

Limited-Time-Only Subsidy for COBRA Continuation Coverage of Unemployed Workers

The Recovery Act of 2009 provides a 65% subsidy for COBRA continuation premiums for up to 9 months for workers who have been involuntarily terminated, and for their families. This subsidy also applies to health care continuation coverage if required by states for small employers. To qualify for premium assistance, a worker must be involuntarily terminated between Sept. 1, 2008 and Dec. 31, 2009. The subsidy terminates upon offer of any new employer-sponsored health care coverage or Medicare eligibility. Workers who were involuntarily terminated between Sept. 1, 2008 and Feb. 17, 2009, but failed to initially elect COBRA because it was unaffordable, must be given an additional 60 days to elect COBRA and receive the subsidy. Participants must attest that their same-year income will not exceed $125,000 for individuals and $250,000 for families. Act Sec. 3001The subsidy is not taxable. Code Sec. 139C , as added by Act Sec. 3001









Following are highlights of the alternative minimum tax (AMT) tax changes in the American Recovery and Reinvestment Act of 2009 (the Recovery Act) signed into law by the President on Feb. 17, 2009.

Boosted AMT Exemption Amounts for 2009

New law

For tax years beginning in 2009, the Recovery Act increases the AMT exemption amounts to:

… $46,700 (up from $46,200 in 2008) for unmarried individuals;

… $70,950 (up from $69,950 in 2008) for married couples filing a joint return and surviving spouses; ( Code Sec. 55(d)(1) , as amended by Act Sec. 1012(a))

… $35,475 (up from $34,975 in 2008) for married individuals filing separate returns.


The Recovery Act’s increases in the AMT exemption amounts are a temporary fix only. Absent Congressional action, the 2010 AMT exemption amounts for individuals will revert to the levels they were at for 2000. The one-year AMT “patch” has the effect of postponing for one year the reductions in those amounts that, under pre-Recovery Act law, were scheduled to go into effect for tax years beginning after 2008. Thus, these reductions are now scheduled to go into effect for tax years beginning after 2009, i.e., for 2010 and later years.

Personal Nonrefundable Credits May Offset AMT and Regular Tax for 2009

Under pre-Recovery Act law, for tax years beginning after 2008, the nonrefundable personal tax credits (other than the adoption credit, the child tax credit, the low-income saver’s credit, the residential energy efficient property, and the non-depreciable property portion of the plug-in electric car credit) were allowed only to the extent that their aggregate amount didn’t exceed the excess of: (a) the taxpayer’s regular tax liability, over (b) his tentative minimum tax, determined without regard to the alternative minimum tax foreign tax credit.


Thus, under the pre-Recovery Act provisions, the nonrefundable personal credits generally (except for the five credits noted above) couldn’t offset AMT. The AMT could also indirectly limit a taxpayer’s nonrefundable personal tax credits even in situations where the taxpayer wasn’t liable for the AMT.

New law

For tax years beginning in 2009, the Recovery Act provides that the aggregate amount of nonrefundable personal credits can’t exceed the sum of: (1) the taxpayer’s regular tax liability for the tax year, reduced by the foreign tax credit, and (2) the AMT. Code Sec. 26(a)(2) , as amended by Act Sec. 1011(a)(1)


Alternative Motor Vehicle Credit Allowed Against AMT

For tax years beginning after Dec. 31, 2008, the Recovery Act provides that the alternative motor vehicle credit is a personal credit allowed against the AMT. Specifically, the alternative motor vehicle credit for any tax year (determined after the application of the rules that treat the portion of the alternative motor vehicle credit attributable to depreciable property as a general business credit) is treated as a personal credit for the tax year. Code Sec. 30B(g)(2)(A) , as amended by Act Sec. 1144(a)

Repeal of AMT Limits on Tax Exempt Bonds Issued in 2009 and 2010

New law

For interest on bonds issued after Dec. 31, 2008 and before Jan. 1, 2011, the Recovery Act provides that tax-exempt interest on private activity bonds issued isn’t an item of tax preference for purposes of the alternative minimum tax (AMT). Code Sec. 57(a)(5)(C)(vi) , as amended by Act Sec. 1503(a)


Nonbusiness Homeowners Energy Credit Extended to 2010 and Modifie

dUnder pre-Recovery Act law, for property placed in service in 2009, a taxpayer could claim a lifetime nonrefundable credit of up to $500 for making qualifying energy saving improvements to his home, but only $200 of this credit amount could be for qualifying window expenditures. The expenses had to be made on or in connection with a dwelling unit located in the U.S., owned and used by the taxpayer as his principal residence, and originally placed in service by the taxpayer. The credit per improvement was:

(1) 10% of the cost of energy efficient building envelope components which meet criteria established by the 2000 International Energy Conservation Code. These consist of: insulation materials or systems that reduce heat loss/gain; exterior windows (including skylights); exterior doors; and certain metal roofs with pigmented coatings or (where placed in service after Oct. 3, 2008) asphalt roofs with cooling granules (which meet the Energy Star requirements) designed to reduce heat gain. The components must be expected to last for at least five years.

(2) Residential energy property expenses (including labor costs) for onsite preparation, assembly, or original installation which meet specific standards in an amount up to:

… $300 for the cost of energy-efficient building property (electric heat pump water heater, electric heat pump; central air conditioner; natural gas, propane or oil water heater; or a stove burning biomass fuel to heat or provide hot water to a taxpayer’s residence in the U.S.) that meets specific energy efficiency standards).

… $150 for a natural gas, propane, or oil furnace or hot water boiler.

… $50 for an advanced main air circulating fan.

Under pre-Recovery Act law, an individual’s expenditures from subsidized energy financing—i.e., financing provided under a Federal, State, or local program with a principal purpose of providing subsidized financing for projects designed to conserve or produce energy—wasn’t taken into account for purposes of the credit.

New law

The Recovery Act extends the Code Sec. 25C nonbusiness energy tax credit for one year through Dec. 31, 2010. Code Sec. 25C(g)(2) , as amended by Act Sec. 1121(e)For tax years beginning after Dec. 31, 2008, for property placed in service before Jan. 1, 2011, the Recovery Act raises the 10% credit rate to 30%. All energy property otherwise eligible for the $50, $100, or $150 credits is instead eligible for a 30% credit on expenditures for the property. Code Sec. 25C(a) In addition, the $500 lifetime cap (and the $200 lifetime cap for windows) is eliminated and replaced with an aggregate cap of $1,500 for property placed in service after Dec. 31, 2008 and before Jan. 1, 2011. Code Sec. 25C(b)

Effective on Feb. 17, 2009, there are revised standards for energy efficient building property (electric heat pumps, central air conditioners and water heaters), oil furnaces and hot water boilers, and exterior windows, doors, and skylights. For tax years beginning after 2008, a revised standard also applies for stoves using biomass fuels. Code Sec. 25C(c) , Code Sec. 25C(d) For tax years beginning after Dec. 31, 2008, the limitation on subsidized energy financing is also eliminated. Code Sec. 25C(e)(1) , as amended by Act Sec. 1103(b)(2)



Cap on Residential Energy Efficient Property Credit Eliminated

For property placed in service before 2017, an individual is allowed a 30% credit for the purchase of residential energy efficient property, such as qualified solar energy property (i.e., property that uses solar power to generate electricity in a home); and qualified fuel cell property, up to a maximum credit of $500 for each 0.5 kilowatt of capacity. Under pre-Recovery Act law, the credit was also allowed for:

… qualified solar water heating property, up to a maximum credit of $2,000;

… qualified small wind energy property, up to $500 for each half kilowatt of capacity (not to exceed $4,000); and

… qualified geothermal heat pump property, up to $2,000.

Under pre-Recovery Act law, rules covered the treatment of joint occupants in allocating the credit taking these maximum limits into account for purposes of residential energy efficient property credit.

Under pre-Recovery Act law, an individual’s expenditures from subsidized energy financing—i.e., financing provided under a Federal, State, or local program with a principal purpose of providing subsidized financing for projects designed to conserve or produce energy—wasn’t taken into account for purposes of the credit.

New law

For tax years beginning after Dec. 31, 2008, the Recovery Act eliminates the credit caps for solar hot water, geothermal, and wind property. Code Sec. 25D(b) , as amended by Act Sec. 1122 The rules covered the treatment of joint occupants are revised to only apply to qualified fuel cell property. ( Code Sec. 25D(e)(4) ) For tax years beginning after Dec. 31, 2008, the limitation on subsidized energy financing is also eliminated. Code Sec. 25D(e) , as amended by Act Sec. 1103(b)














Additional 50% First-Year Depreciation OK’d for Most Types of New Depreciable Property Placed in Service in 2009

New law

For property placed in service after Dec. 31, 2008, in tax years ending after that date, the Recovery Act provides an additional depreciation deduction in the placed-in-service year equal to 50% of the adjusted basis of “qualified property.” Code Sec. 168(k)(1) , as amended by Act Sec. 1201(a)The property generally must be acquired before Jan. 1, 2010 (before Jan. 1, 2011 for certain longer-lived property).

First-Year Depreciation Dollar Cap for New Passenger Autos Placed in Service in 2009 Raised by $8,000

Retroactively effective for vehicles bought and placed in service after 2008, the Recovery Act increases by $8,000 the first-year depreciation dollar limit for a passenger auto that is “qualified property” meeting the original use and acquisition and placed-in-service requirements. Code Sec. 168(k)(2)(F)(i)


Recovery Act Boosts Code Sec. 179 expensing for 2009

For tax years beginning in 2009, the Recovery Act increases the expensing limit to $250,000 and the investment ceiling limit to $800,000. The $250,000 and $800,000 amounts are not indexed for inflation. Code Sec. 179(b)(7) , as amended by Act Sec. 1202

Small Businesses May Elect Longer NOL Carryback Period

New law

For NOLs arising in tax years ending after Dec. 31, 2007, the Recovery Act permits small businesses to elect to increase the NOL carryback period for an applicable 2008 NOL (the “applicable NOL”) from 2 years to any whole number of years which is more than 2 and less than 6. Code Sec. 172(b)(1)(H) , as amended by Act Sec. 1211(a)A small business for this purpose is defined as a corporation or partnership that meets the gross receipts test of Code Sec. 448(c) (applied by substituting $15 million for $5 million) for the tax year in which the loss arose, or a sole proprietorship that would meet that test if the proprietorship were a corporation. This means any trade or business (including one conducted in or through a corporation, partnership, or sole proprietorship) whose average annual gross receipts (under Code Sec. 448(c) , as modified) are $15 million or less.

Reduced Estimated Tax Burden in 2009 for Individuals With Small Businesses

New law

Effective on Feb. 17, 2009, the Recovery Act provides that notwithstanding Code Sec. 6654(d)(1)(C) , for any tax year beginning in 2009, in computing the amount of the required annual installments of estimated income tax of any qualified individual, “required annual payment” means the lesser of (1) 90% of the tax shown on the return for the tax year, or (2) 90% of the tax shown on the return of the individual for the preceding tax year. Code Sec. 6654(d)(1)(D) , as amended by Act Sec. 1212; Committee ReportA qualified individual means any individual if the AGI on the tax return for the preceding tax year is less than $500,000 ($250,000 if married filing separately) and the individual certifies that at least 50% of the gross income shown on the return for the preceding tax year was income from a small trade or business. For estates and trusts, AGI is determined under Code Sec. 67(e) . A small trade or business is one that employed no more than 500 persons, on average, during the calendar year ending in or with the preceding tax year. Code Sec. 6654(d)(1)(D)(iii)