Numerous tax provisions in Stimulus Act.

• Author: Nevius, Alistair M.

The American Recovery and Reinvestment Act of 2009, P.L. 111-5, was signed by President Obama on February 17, 2009. In addition to various spending programs intended to stimulate the economy, the act contains numerous tax provisions aimed at individuals and small businesses. The most significant individual and business provisions are discussed below.

IndividualTax Breaks

Making work pay credit: The act creates a new credit, called the making work pay credit, that is intended to partially offset an employee's portion of Social Security payroll taxes. The temporary credit equals 6.2% of a taxpayer's earned income up to a total credit of $400 for individuals and $800 for joint fliers (Sec. 36A). The credit is retroactive to the beginning of 2009 and is set to expire at the end of 2010. It begins phasing out at a rate of 2% of modified adjusted gross income (MAGI) above $75,000 for individuals and $150,000 for joint filers.

AMT patch: For 2009, the alternative minimum tax (AMT) exemption is increased to $46,700 for singles and $70,950 for joint fliers (Sec. 55(d)).

Homebuyer's credit: The act increases the amount of the Sec. 36 first-time homebuyer's credit from $7,500 to $8,000, and it eliminates the repayment requirement for houses purchased in 2009. The credit, added by the Housing Assistance Tax Act of 2008, P.L. 110-289, is refundable, but for homes purchased between April 9, 2008, and December 31, 2008, it must be recaptured ratably over 15 years, or earlier if the home is sold. The stimulus act waives the recapture requirement for homes purchased after January 1, 2009, and extends the sunset of the credit from June 30, 2009, to December 1, 2009.

The amount of the credit remains 10 % of the purchase price of a principal residence of a taxpayer who has not owned a U.S. principal residence in the previous three years. Recapture still applies if the taxpayer disposes of the home or no longer uses it as a principal residence within three years after purchase.

New car sales tax deduction: Buyers of new cars and light trucks between February 17 and the end of 2009 may deduct the portion of state and local sales and excise taxes attributable to the first $49,500 of the vehicle's purchase price (Sec. 164(b)(6)). This is an above-the-line deduction, and it is allowed against AMT. The deduction will be phased out for single taxpayers with MAGI in excess of $125,000 for the tax year ($250,000 for joint fliers). Taxpayers who elect under Sec...