Recovery and reinvestment Act creates opportunities for businesses.

• Author: Chianelli, Eugene W., Jr
• Position: LAW JOURNAL 2009

When President Obama signed the American Recovery and Reinvestment Act of 2009 into law Feb. 17, it created considerable tax benefits for businesses. These benefits may save businesses more than $75 billion in 2009 and 2010 alone. In general, they fall into two categories--changes to business income and deductions rules and new or expanded business-related tax credits and other incentives.

Changes to business income and deductions rules.

Extension of bonus depreciation. Many businesses have benefited from special bonus depreciation rules enacted in 2008. These rules temporarily allow businesses to recover capital expenditures made in 2008 faster than normal by permitting them to immediately write off 50% of the cost of certain depreciable property acquired in 2008 for use in the U.S. Bonus depreciation is taken in addition for the year the property is placed in service. The act extends this benefit another year, so that it is now applicable to depreciable property placed in service before Jan. 1, 2010.

Delayed taxation of cancellation of debt income. A business may recognize taxable income when it cancels or repurchases its debt for an amount less than issue price. The amount of taxable income is generally the difference between the issue price and the repurchase price. This income can be burdensome for businesses because a cancellation or repurchase of debt rarely--if ever--generates cash to pay the tax. Under the act, certain businesses will be allowed to defer taxation on this income for up to five years and then pay income tax ratably over the following five years.

Five-year carryback of net operating losses for small businesses. Whenever allowable deductions exceed gross income in a tax year, a net operating loss is generated. Corporations may generally carry back net operating losses as a deduction in earlier tax years or carry forward net operating losses as a deduction in later tax years. The maximum carry-back period is usually two years and the maximum carry-forward period is usually 20. Under the act, certain small businesses with annual gross receipts of $15 million or less may elect to carry back net operating losses generated in 2008 for up to five years. This is intended to help struggling businesses by allowing them to deduct losses immediately.

Extension of enhanced small-business expensing. In some circumstances, small businesses may quickly recover the costs of certain capital expenditures by writing off these costs...