New Tax Act Passed

Congress has passed numerous tax changes in the “Worker, Homeownership and Business Assistance Act of 2009.” The following is a summary of the more prominent points of this comprehensive legislation:

- Businesses can carry back any losses from 2009 for 3, 4 or 5 years instead of the normal two-year carry back term. This should help businesses with cash flow issues. Most businesses will qualify for these new provisions. You still retain the option of waiving the carry back term and electing instead to carry the loss forward. This law currently does NOT apply to losses for 2010 but rather only for 2008 and 2009 losses. In addition, there is a 50% income limitation for losses being carried back to the fifth year. This means that the carry back loss cannot exceed 50% of the income reported in the fifth carry back year. Changes were also made to the Alternative Minimum Tax laws on these carry- back provisions to prevent the AMT from taking away what the regular tax laws now permit.

- The Act increases the amount of penalties for S corporations and partnerships which file late to $195 per partner/owner per month, up to a maximum of 12 months. This is an increase from $89 per owner per month. This provision is expected to raise over $1.1 Billion to the tax revenues.

- The first-time homebuyer provisions have been extended to May 1, 2010 (from November 30, 2009). A “first-time homebuyer” is one who had no ownership interest in a primary residence for at least three years prior to the closing on the new purchase. This is available to taxpayers with an adjusted gross income under $145,000 (single) and $245,000 (married filing joint). In addition, the taxpayer must be at least 18 years old, cannot be claimed as a dependent of another in the year of the purchase, cannot acquire the property from a related person, and must attach a copy of the closing settlement statements to the tax return in which the credit is being claimed. Finally, there are expanded rules for members of the military concerning timing and qualifications. For service members, the May 1, 2010, deadline is extended to April 30, 2011.

- There is a new provision for “long-time residents” and the purchase of a new primary residence. If you have lived in the same principal residence for at least five consecutive years out of the eight years before the new residence purchase, you will qualify. The maximum credit for this provision is $6,500 and there are no income phase-outs on this except that the home must cost less than $800,000 in order to qualify.

- The Federal Unemployment Tax Act (FUTA) rate of 6.2% has been extended for an additional one year. This amount was supposed to revert to 6% but Congress left the 0.2% surcharge in place for one additional year.