2009: Worker, Homeownership, and Business Assistance Act of 2009
By Nancy Faussett, CPA
Publication date: 11/09/2009
The Worker, Homeownership, and Business Assistance Act of 2009 (H.R. 3548) was signed into law by President Obama on November 6, 2009. The bill began as a simple extension of unemployment insurance benefits but then several tax provisions were added to it, namely the expansion and extension of both the home buyer tax credit and the net operating loss (NOL) carryback rules.
Unemployment Insurance Benefits
The Act extends unemployment insurance (UI) benefits for 14 more weeks in all 50 states and up to 20 more weeks in those states that have an unemployment rate of at least 8.5% as a three-month average. However, the temporary exclusion of the first $2,400 of unemployment benefits was not extended.
To pay for this provision, the Act extends the 0.2 percent Federal Unemployment Tax Act (FUTA) surtax through June 30, 2011.
Homebuyer Tax Credit
Currently, there is a credit for first-time homebuyers who purchase a principal residence by November 30, 2009. The credit is the lesser of 10% of the home’s purchase price or $8,000. Knowing that the credit was about to expire and with the real estate market still in a downturn, Congress decided to extend (and expand) the credit through April 30, 2010. This is to be the last extension of this credit.
There are several changes made to the present credit. First, while the current credit phases out for individuals with a modified adjusted gross income (AGI) between $75,000 and $95,000 (between $150,000 and $170,000 for joint returns), the extended credit is allowed for those individuals earning up to $125,000 ($225,000 for couples). Also, there will no longer be allowed any credit amount if the purchase price of the residence exceeds $800,000 (i.e., there is no phaseout amount allowed). Furthermore, the taxpayer must be at least 18 years of age to be eligible to claim the newly revised credit.
Those who have already entered into a binding contract to purchase a home will be eligible for the credit as long as they close within 60 days. As for the new credit, if someone enters into a binding contract before May 1, 2010, they may still claim the credit as long as they close on the purchase before July 1, 2010.
If the homebuyer ceases to use the new residence as their principal residence within 36 months of the purchase date, the taxpayer must repay the credit. (There are certain exceptions to this, such as death or the transfer of the residence in a divorce, which will continue to apply.)
In addition, the Act expands the credit to include a $6,500 tax credit for existing homeowners who want to buy a different principal residence before May 1, 2010. To qualify, homeowners must have used their present home as their principal residence for a five-year consecutive period during the past eight years. To be eligible, the new residence must be purchased after November 6, 2009 (i.e., the date of the Act’s enactment). These individuals will be treated as “first-time homebuyers’ for the purpose of this credit.
There are two additional benefits for military personnel included in the Act. First, the homebuyer tax credit will be allowed to be claimed by military personnel for an additional year. To qualify, the taxpayer must serve overseas for at least 90 days during the period beginning January 1, 2009, and ending before May 1, 2010. In addition, there is a provision to allow tax-exempt payments when compensating military personnel who are forced to sell their homes at a loss due to a permanent reassignment or other reason.
The homebuyer credit is claimed on IRS Form 5405, First-Time Homebuyer Credit.
NOL Carryback Provision
Under the American Recovery and Reinvestment Act of 2009, small businesses, with average gross receipts of $15 million or less, were allowed to carry back net operating losses (NOLs) incurred in 2008 to claim a refund of taxes paid within the prior five years (previously there was only a two-year carryback allowed). Now under this latest Act, the five-year carryback has been extended and modified.
The new five-year carryback election is allowed for losses incurred in either 2008 or 2009 (i.e., it is not allowed for both years) and is permitted for all businesses, regardless of size. However, this provision is not available to any business who received TARP (Troubled Asset Relief Program) funds. Although there is no limit on the NOL carryback amount to the first four years, if carried back to the fifth year, the carryback amount is limited to 50% of the business’s taxable income for that year.*
*Editor’s note: If a small business had elected to carry back a 2008 NOL under the provision in the American Recovery and Reinvestment Act, the limit of 50% of taxable income will not apply. Furthermore, if such an election had been made prior to the passage of the Worker, Homeownership, and Business Assistance Act, then the business may take advantage of the five-year carryback period for both 2008 and the 2009 NOLs.
The Act suspends the 90% limitation on the use of any NOLs for calculating AMT for an extended carryback year.
Mandatory E-Filing
The Act requires all tax return preparers who expect to file more than 10 individual income tax returns, to file them electronically. However, there is no similar mandate requiring that they also e-pay any tax due.
Tax Break on Worldwide Interest Delayed
In order to offset the cost of the new provisions for the homebuyer credit and NOL carryback, the Act delays, for seven years, the implementation of the planned tax break on worldwide interest allocation slated for use by multinational companies. The delayed tax break is an election for consolidated groups of corporations to allow them to allocate interest on a worldwide basis, including any foreign corporations, rather than the current law that only allows such allocations among domestic corporations. Now the Act delays the effective date for the election until tax years beginning after 2017.
Other Offsets
Also, to offset the cost of implementing the above tax provisions, the Act provides the following:
- Increase in certain penalties: The Act increases the penalties for failure to file S corporation and partnership tax returns. The penalty is increased from $89 to $195, for each shareholder (or partner), for each month that the failure continues, up to twelve months. This provision is effective for tax returns with years beginning after December 31, 2009.
- Increase in corporate estimated tax payments: The Act increases any corporate estimated tax payment due July, August, or September 2014 by 33%. Of course, later payments will have a corresponding decrease. This applies to businesses with assets of at least $1 billion.
2009: Worker, Homeownership, and Business Assistance Act of 2009
By Nancy Faussett, CPA
Publication date: 11/09/2009
The Worker, Homeownership, and Business Assistance Act of 2009 (H.R. 3548) was signed into law by President Obama on November 6, 2009. The bill began as a simple extension of unemployment insurance benefits but then several tax provisions were added to it, namely the expansion and extension of both the home buyer tax credit and the net operating loss (NOL) carryback rules.
Unemployment Insurance Benefits
The Act extends unemployment insurance (UI) benefits for 14 more weeks in all 50 states and up to 20 more weeks in those states that have an unemployment rate of at least 8.5% as a three-month average. However, the temporary exclusion of the first $2,400 of unemployment benefits was not extended.
To pay for this provision, the Act extends the 0.2 percent Federal Unemployment Tax Act (FUTA) surtax through June 30, 2011.
Homebuyer Tax Credit
Currently, there is a credit for first-time homebuyers who purchase a principal residence by November 30, 2009. The credit is the lesser of 10% of the home’s purchase price or $8,000. Knowing that the credit was about to expire and with the real estate market still in a downturn, Congress decided to extend (and expand) the credit through April 30, 2010. This is to be the last extension of this credit.
There are several changes made to the present credit. First, while the current credit phases out for individuals with a modified adjusted gross income (AGI) between $75,000 and $95,000 (between $150,000 and $170,000 for joint returns), the extended credit is allowed for those individuals earning up to $125,000 ($225,000 for couples). Also, there will no longer be allowed any credit amount if the purchase price of the residence exceeds $800,000 (i.e., there is no phaseout amount allowed). Furthermore, the taxpayer must be at least 18 years of age to be eligible to claim the newly revised credit.
Those who have already entered into a binding contract to purchase a home will be eligible for the credit as long as they close within 60 days. As for the new credit, if someone enters into a binding contract before May 1, 2010, they may still claim the credit as long as they close on the purchase before July 1, 2010.
If the homebuyer ceases to use the new residence as their principal residence within 36 months of the purchase date, the taxpayer must repay the credit. (There are certain exceptions to this, such as death or the transfer of the residence in a divorce, which will continue to apply.)
In addition, the Act expands the credit to include a $6,500 tax credit for existing homeowners who want to buy a different principal residence before May 1, 2010. To qualify, homeowners must have used their present home as their principal residence for a five-year consecutive period during the past eight years. To be eligible, the new residence must be purchased after November 6, 2009 (i.e., the date of the Act’s enactment). These individuals will be treated as “first-time homebuyers’ for the purpose of this credit.
There are two additional benefits for military personnel included in the Act. First, the homebuyer tax credit will be allowed to be claimed by military personnel for an additional year. To qualify, the taxpayer must serve overseas for at least 90 days during the period beginning January 1, 2009, and ending before May 1, 2010. In addition, there is a provision to allow tax-exempt payments when compensating military personnel who are forced to sell their homes at a loss due to a permanent reassignment or other reason.
The homebuyer credit is claimed on IRS Form 5405, First-Time Homebuyer Credit.
NOL Carryback Provision
Under the American Recovery and Reinvestment Act of 2009, small businesses, with average gross receipts of $15 million or less, were allowed to carry back net operating losses (NOLs) incurred in 2008 to claim a refund of taxes paid within the prior five years (previously there was only a two-year carryback allowed). Now under this latest Act, the five-year carryback has been extended and modified.
The new five-year carryback election is allowed for losses incurred in either 2008 or 2009 (i.e., it is not allowed for both years) and is permitted for all businesses, regardless of size. However, this provision is not available to any business who received TARP (Troubled Asset Relief Program) funds. Although there is no limit on the NOL carryback amount to the first four years, if carried back to the fifth year, the carryback amount is limited to 50% of the business’s taxable income for that year.*
*Editor’s note: If a small business had elected to carry back a 2008 NOL under the provision in the American Recovery and Reinvestment Act, the limit of 50% of taxable income will not apply. Furthermore, if such an election had been made prior to the passage of the Worker, Homeownership, and Business Assistance Act, then the business may take advantage of the five-year carryback period for both 2008 and the 2009 NOLs.
The Act suspends the 90% limitation on the use of any NOLs for calculating AMT for an extended carryback year.
Mandatory E-Filing
The Act requires all tax return preparers who expect to file more than 10 individual income tax returns, to file them electronically. However, there is no similar mandate requiring that they also e-pay any tax due.
Tax Break on Worldwide Interest Delayed
In order to offset the cost of the new provisions for the homebuyer credit and NOL carryback, the Act delays, for seven years, the implementation of the planned tax break on worldwide interest allocation slated for use by multinational companies. The delayed tax break is an election for consolidated groups of corporations to allow them to allocate interest on a worldwide basis, including any foreign corporations, rather than the current law that only allows such allocations among domestic corporations. Now the Act delays the effective date for the election until tax years beginning after 2017.
Other Offsets
Also, to offset the cost of implementing the above tax provisions, the Act provides the following:
- Increase in certain penalties: The Act increases the penalties for failure to file S corporation and partnership tax returns. The penalty is increased from $89 to $195, for each shareholder (or partner), for each month that the failure continues, up to twelve months. This provision is effective for tax returns with years beginning after December 31, 2009.
- Increase in corporate estimated tax payments: The Act increases any corporate estimated tax payment due July, August, or September 2014 by 33%. Of course, later payments will have a corresponding decrease. This applies to businesses with assets of at least $1 billion.
| Sign up to receive news and updates from BNA Software |
