What the ARRA holds: working your clients through the recovery act.

• Position: Taxupdate

from stimulus payments to various tax credits, the American Recovery and Reinvestment Act of 2009 (ARRA) and the California budget bills cover a lot of ground and have something for just about everyone. The following highlights are from a CalCPA Education Foundation webcast featuring Gary McBride, CPA, and Tom Daley, CPA. McBride is an accounting professor and director of the Graduate Tax Program at California State University East Bay, and Daley is a partner with Bowers, Narasky & Daley, LLP.

You can access the webcast at htip://webcast.educationfoundation.org/p19128394.

2009 Stimulus Payments and Credits

In May, a $250 Economic Recovery Payment went to people receiving benefits from the Social Security Administration, Railroad Retirement Board or the Veteran's Administration.

Your clients may also receive a stimulus payment if they will receive a government pension benefit anytime in 2009. This will earn them a $250 refundable tax credit when a tax return is filed.

Taxpayers that receive both a government pension and social security benefits should have received the economic recovery payment of $250 and will not get the credit. One offsets the other.

For non-retired taxpayers, there is the Making Work Pay Tax Credit, which is going to be a refundable credit on 2009 and 2010 tax returns. This refundable credit is equal to the lesser of 6.2 percent of earned income or $400. This means clients will get the credit on their first $6,450 of earned income. However, it applies to earned income not subject to FICA or SE tax (e.g., government workers). This credit is not available for nonresident aliens and dependents, and phases out beginning at an adjusted gross income of $75,000 ($150,000, married filing jointly).

This credit is reduced by the aforementioned $250 refund/credit if received as well.

[ILLUSTRATION OMITTED]

Federal First-Time Homebuyer Credit

This credit, enacted in 2008, has been extended to the end of November and increased to 10 percent of the purchase price up to a maximum amount of $8,000. The 15-year repayment requirement associated with this credit has been replaced by a three-year occupancy and recapture rule, so that the credit is now truly a credit, rather than merely an interest-free loan. For a 2009 home purchase, the credit may be claimed on an amended 2008 tax return using the new rules.

Important guidance related to this credit is published in IRS Notice 2009-12, which includes allocating the credit between unmarried co-tenants. The rules adopted in this notice will allow parents to fund home purchases for a child, with the child claiming the credit.

Sales Tax Deduction on Purchase of Qualified Motor Vehicles

This allows taxpayers to deduct the sales tax on up to $49,500 of the purchase price on a new qualified motor vehicle acquired after Feb. 17, 2009, and before the end of 2009. A QMV is a passenger auto, light truck or motorcycle with a gross vehicle weight rating of not more than 8,500 pounds, or a motor home of any weight. Motor homes and motorcycles are defined in Fed. Reg. 571.3 Title 49.

There are AGI phaseouts of this deduction. For married taxpayers filing...