Congress Passes Economic Stimulus Legislation

On February 13, 2009, Congress passed the American Recovery and Reinvestment Act of 2009 (H.R. 1). The vote in the House was 246 to 183. The vote in the Senate was 60 to 38. The total $787 billion ten-year cost of the package is 65 percent allocated to spending and 35 percent allocated to tax breaks, heavily loaded toward the 2009 and 2010 period. The compromise legislation includes for individuals a Making Work Pay Credit based on earned income, reduced in the final agreement to $400 ($800 for joint filers), with a $250 economic stimulus payment four groups including Social Security recipients and disabled veterans and a $250 credit for government pensioners; an AMT patch for 2009; extension of the first-time homebuyer credit to December 1, 2009, with a cap of $8,000 and the repayment obligation eliminated for 2009 purchases; a $3,000 floor on the refundable Child Tax Credit; expansion of the Earned Income Tax Credit; a $2,500 American Opportunity Tax Credit that is 40 percent refundable; suspension of income tax on up to $2,400 of unemployment benefits for 2009; expansion of eligible expenses for 529 plans to include computers and related technology; an above-the-line deduction for taxes related to the purchase of a new automobile; an increase in the credit for nonbusiness energy property from $500 to $1,500, elimination of separate limits for particular types of property, and a modification of standards; elimination of the dollar caps on residential solar heating, geothermal heat pump, and small wind turbine property; an increase in the credit for alternative fuel vehicle refueling property; and a general re-write of the plug-in electric drive motor vehicle credit, including new per manufacturer vehicle limits, a new credit for two or three wheel and low-speed plug-in electric vehicles, and allowing a credit for conversion kits.

On the business side, provisions include extending bonus depreciation and increased Code Sec. 179 expensing through 2009; up to five-year carryback of net operating losses, but limited to businesses with gross receipts under $15 million; expansion of the Work Opportunity Tax Credit to cover unemployed veterans and disconnected youth; deferral of cancellation of indebtedness income; an increased exclusion amount for commuter transit benefits and transit passes; an increase in the capital gain exclusion percentage for qualified small business stock to 75 percent; reduction to seven years for the S Corporation built-in gain holding period; and prospective repeal of Notice 2008-83 with respect to utilization of net operating losses of acquired companies, with new Code Sec. 382 rules for company restructurings pursuant to agreements with the Treasury Department. The legislation also includes a number of new or enhanced bond provisions aimed at economic recovery and alternative energy. The implementation of a withholding tax on government contractors is delayed for one more year.

President Obama is expected to sign the legislation on or before Monday, February 16

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