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CCH Special Tax Briefing: Bill Extends, Expands Stimulus Provisions

(RIVERWOODS, ILL., November 5, 2009) – Economic Stimulus legislation rolls on, with House passage of the Worker, Homeownership, and Business Assistance Act of 2009 extending and expanding stimulative tax measures contained in the American Recovery and Reinvestment Act that became law earlier this year. The bill now goes to the president for his expected signature. CCH has issued a Special Tax Briefing on the tax provisions of the Act. To read the Briefing, go to CCH Tax Legislation Coverage.

Homebuyer’s Credit Expanded

The provisions that will affect the greatest number of individual taxpayers concern the First-Time Homebuyer’s Credit, which was set to expire at the end of this month.

“The duration of the availability of the credit, the allowable income ranges of purchasers and the restriction to first-time buyers have all been liberalized,” said CCH Principal Federal Tax Analyst Mark Luscombe, JD, LLM, CPA.

The credit is calculated as 10-percent of the purchase price of the new home, capped at $8,000 for first-time buyers. 

The credit has been extended in time to cover purchases made before May 1, 2010.  However, if a purchaser signs a binding contract by that date, the purchase will still qualify as long as closing takes place before July 1, 2010.  Members of the military serving outside the United States for at least 90 days can take advantage of the credit until June 30, 2011.

The income range for eligible purchasers has been expanded so that the credit doesn’t begin to phase out until the modified adjusted gross income of purchasers exceeds $125,000 for single filers, $225,000 for joint filers.  The old phaseout thresholds were $75,000 and $125,000, respectively.

The credit has also been expanded to cover purchases of a new principal residence by people who have lived in their current principal residences for at least five out of the last eight years. However, they will only be eligible for a $6,500 maximum credit. 

“This provision is aimed not only at individuals who are moving up to a more expensive home, but also to empty-nesters who are downsizing,” Luscombe said. “It also may ease some of the ‘sting’ of selling a home that has declined in value.”

One rule that isn’t changing is that a purchaser can treat the purchase as having occurred on December 31 of the previous year, and claim the credit against that year’s taxes.

“Someone who buys a home early in 2010 could take the credit on their 2009 tax return, or if they’ve already filed they could amend their return and get a quick refund,” Luscombe said.

Responding to concerns about fraud and misuse of the credit, the legislation also caps the purchase price of eligible homes at $800,000, excludes purchasers under 18 years of age and tightens other requirements.

“The IRS is also given authority to assess taxes quickly if they think the purchase doesn’t qualify,” Luscombe noted.

Net Operating Loss Carryback Expanded

Earlier this year, the American Recovery and Reinvestment Act allowed businesses to carry back net operating losses (NOLs) from 2008 for three, four or five years rather than the standard two years, but limited this opportunity to businesses with average gross receipts of no more than $15 million. The new law provides a similar election to all U.S. businesses of every size, but with a 50-percent income limit on NOL offsets in the fifth year. The provision applies to NOLs incurred in either 2008 or 2009, but not for both years. However, a small business that elected to carry back 2008 NOLs under the Recovery Act can make the election for an additional year, carrying back NOLs from both 2008 and 2009 for up to five years.

“This is a major expansion of the NOL rules,” Luscombe said.  “Like the homebuyer’s credit, it can produce a quick refund from an amended return, which businesses can use for any purpose they wish.”

CCH Tax Briefings

To read the Worker, Homeownership, and Business Assistance Act of 2009 Briefing, go to CCHGroup.com/Legislation. Timely, current analysis of this and other tax legislation can be found on this site. 

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CCH, a Wolters Kluwer business (CCHGroup.com) is a leading provider of tax, accounting and audit information, software and services. Wolters Kluwer is a leading global information services and publishing company (www.wolterskluwer.com).

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