Tax Provisions Expiring in 2009 - Be Prepared!

With the recent significant changes to laws as well as the tax code (care of the Emergency Economic Stabilization Act (EESA, P.L. 110-343), and the American Recovery and Reinvestment Act of 2009 (Recovery Act, P.L. 111-5), confusion as to which pieces of the tax code are and aren't expiring is becoming widespread.

The EESA and the Recovery Act extended more than 30 tax breaks that were scheduled to expire this year or within the next 2 years. The following is a quick run-down of some of the provisions that WILL be expiring in 2009 (generally at the end):

• Increased AMT exemption amount. The AMT exemption amounts for 2009 were increased to $46,700 for unmarrieds, to $70,950 for joint filers, and to $35,475 for marrieds filing separately. After 2009, the exemptions drop to $33,750 for unmarrieds, to $45,000 for joint filers, and to $22,500 for marrieds filing separately.
• Personal tax credits allowed against regular tax and alternative minimum tax. After 2009, the nonrefundable personal credits—other than the adoption expense credit, the child tax credit, the saver's credit, the residential energy efficient property credit, and the nonbusiness portion of the qualified plug-in electric drive motor vehicle credit—will be subject to the limitation: the aggregate amount of those credits can't exceed the excess of: (a) the individual's regular tax liability, over (b) the individual's tentative minimum tax, determined without regard to the AMT foreign tax credit
• Additional first-year 50% bonus depreciation for qualified property. Qualified property is allowed 50% depreciation (bonus depreciation) in the year that the property is placed in service (with corresponding reductions in basis and reductions of the regular depreciation deductions otherwise allowed in the placed-in-service year and in later years). In addition, an $8,000 increase in the first-year depreciation limit for passenger automobiles that are qualified property is also extended through 2009. (Certain aircraft and long-production-period property can continue to be placed in service through 2010.)
• Increased expensing election to $250,000 (with a $800,000 investment ceiling limit). Taxpayers can elect to deduct the cost of any section 179 property placed in service during the tax year as an expense which is not chargeable to capital account. (For 2010, expensing is limited to $125,000 with a $500,000 investment ceiling limit (both figures indexed for inflation)).
• Election to accelerate AMT and research credits in lieu of additional first-year depreciation.
• Fifteen-year straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements.
• Additional standard deduction for state and local real property taxes. The real property tax deduction—the lesser of: (1) the amount allowable as a deduction under the itemized deduction rules for state and local real property taxes; or (2) $500 ($1,000 for a joint return)—is included as a component of the standard deduction.
• First time homebuyer credit (expiring in 11/30/09). A credit of $8,000 ($4,000 for marrieds filing separately) is allowed for first-time homebuyer. The credit isn't recaptured unless residence is sold or ceases to be a principal residence within 36 months of purchase.
• Above-the-line deduction for qualified tuition and related expenses.
• Deduction for certain expenses of elementary and secondary school teachers.
• Exclusion of unemployment compensation benefits from gross income.
• Tax-free distributions from individual retirement plans for charitable purposes. An up-to-$100,000 annual exclusion from gross income is allowed for taxpayers age 70 1/2 who make otherwise taxable IRA distributions that are qualified charitable distributions.

For more information, or to schedule a consultation to discuss how any of these items may impact you or your business, email us.

(used with permission from RIA Checkpoint)