The recently enacted “American Recovery and Reinvestment Act of 2009″ (2009 Economic Stimulus Act) includes a wide-range of tax incentives, many of which are retroactive to the beginning of the year. This week I’ll share the changes impacting individuals. Then, be sure to look for email next week when I share the changes impacting businesses. Here’s What Individual Taxpayers Need to Know about the New Tax Law: Expanded First-Time Credit for First-Time Home Buyers Last year, Congress provided taxpayers with a refundable tax credit that was equivalent to an interest-free loan equal to 10% of the purchase of a home (up to $75,000) by first-time home buyers. It applied to homes purchased on or after April 9, 2008 and before July 1, 2009. Taxpayers receiving this tax credit were required to repay any amount received under this law back to the government over 15 years in equal installments or earlier if the home was sold. The credit phases out for taxpayers with adjusted gross income in excess of $75,000 ($150,000 in the case of a joint return). The new tax law enhances the credit by eliminating the repayment obligation for taxpayers that purchase homes on or after January 1, 2009. It also extends the credit through the end of November 2009, and bumps up the maximum value of the credit from $7,500 to $8,000. Expanded and Revised Higher Education Tax Credit The new law creates a $2,500 higher education tax credit that is available for the first four years of college. The credit is based on 100% of the first $2,000 of tuition and related expenses, including books, paid during the tax year and 25% of the next $2,000 of tuition and related expenses paid during the tax year. The credit is subject to a phase-out for AGI in excess of $80,000 ($160,000 for married couples filing jointly). Forty percent of the credit is refundable. This new credit temporarily replaces the Hope credit. Computers as an Education Expense The new law permits computers and computer technology, including internet access, to qualify as qualified education expenses in 529 education plans for tax years beginning in 2009 and 2010. Tax Break for New Car Purchasers The new law allows taxpayers to deduct state and local sales taxes paid on the purchase of a new automobile, including light trucks, SUVs, motorcycles, and motor homes. The tax break phases out starting with taxpayers earning $125,000 per year ($250,000 for joint returns). The deduction is allowed to both those who itemize their deductions as well as to those who do not. The deduction cannot be taken by a taxpayer who elects to deduct state and local sales taxes in lieu of state and local income taxes. Alternative Minimum Tax(AMT)Patch To hold the number of taxpayers subject to the AMT at bay, the new law increases the AMT exemption amounts for 2009 to $46,700 for individuals and $70,950 for joint returns, and allows the personal credits against the AMT. Making Work Pay Credit The new law provides an individual tax credit in the amount of 6.2 percent of earned income not to exceed $400 for single returns and $800 for joint returns in 2009 and 2010. The credit is phased out at adjusted gross income (AGI) in excess of $75,000 ($150,000 for married couples filing jointly). The credit can be claimed as a reduction in the amount of income tax that is withheld from a paycheck, or through a credit on a tax return. Under the credit, workers can expect to see perhaps $13 a week less withheld from their paychecks starting around June. Next year, the extra take-home pay will go down to around $9 per week Economic Recovery Payment The new law provides for a one-time payment of $250 to retirees, disabled individuals and Social Security beneficiaries and SSI recipients receiving benefits from the Social Security Administration and Railroad Retirement beneficiaries, and to veterans receiving disability compensation and pension benefits from the U.S. Department of Veterans’ Affairs. The one-time payment is a reduction to any allowable Making Work Pay credit. Refundable Credit for Certain Federal and State Pensioners The new law provides a one-time refundable tax credit of $250 in 2009 to certain government retirees who are not eligible for Social Security benefits. This one-time credit is a reduction to any allowable Making Work Pay credit. Unemployment Compensation Exclusion The new tax law temporarily suspends federal income tax on the first $2,400 of unemployment benefits received by a recipient in 2009. Expanded Earned Income Tax Credit The new law provides tax relief to families with three or more children and increases marriage penalty relief. The changes apply for 2009 and 2010. Expanded Child Tax Credit The new tax law increases the refundable portion of the child tax credit for 2009 and 2010 by lowering the income threshold to $3,000 (from $8,500 in 2008). Qualified Transportation Fringe Benefits Qualified transportation fringe benefits, such as transit passes, qualified parking and van pooling are not included in an employee’s income up to a specified dollar amount. The new tax law increases the monthly amount to $230 per month from $120 per month starting in March 2009 and continuing through 2010. Energy Incentives The new tax law enhances several energy tax incentives that reward taxpayers for installing energy-efficient property and alternative sources of energy in their homes.

The recently enacted “American Recovery and Reinvestment Act of 2009″ (2009 Economic Stimulus Act) includes a wide-range of tax incentives. Extension of Bonus Depreciation Last year, Congress temporarily allowed businesses to recover the costs of capital expenditures made in 2008 faster than the ordinary depreciation schedule would allow by permitting these businesses to immediately write off 50% of the cost of depreciable property acquired in 2008 for use in the United States. The new law extends this temporary benefit for qualifying property purchased and placed into service in 2009. Extension of Section 179 In order to help small businesses quickly recover the cost of certain capital expenses, small business taxpayers may elect to write off the cost of these expenses in the year of acquisition in lieu of recovering these costs over time through depreciation. Last year, Congress temporarily increased the amount that small businesses could write off for capital expenditures incurred in 2008 to $250,000 and increased the phase-out threshold for 2008 to $800,000. The new law extends these temporary increases for capital expenditures incurred in 2009. Expanded Carryback of Net Operating Losses Prior to the new law, net operating losses (NOLs) could be carried back to the two years before the year of the loss and carried forward for the succeeding twenty years. For 2008, the new law extends the maximum NOL carryback period from two years to five years for small businesses with gross receipts of $15 million or less. Incentives to Hire Unemployed Veterans and Disconnected Youth Businesses are allowed to claim a work opportunity tax credit equal to 40% of the first $6,000 of wages paid to employees of one of nine targeted groups. The new law expands the work opportunity tax credit to include two new targeted groups: (1) unemployed veterans; and (2) disconnected youth. Individuals qualify as unemployed veterans if they were discharged or released from active duty from the Armed Forces during 2008, 2009 or 2010 and received unemployment compensation for more than four weeks during the year before being hired. Individuals qualify as disconnected youths if they are between the ages of 16 and 25 and have not been regularly employed or attended school in the past 6 months. Accumulated AMT and R&D Credits The new law extends the provision contained in the Foreclosure Prevention Act of 2008 and allows AMT and loss taxpayers in 2009 to receive 20% of the value of their old AMT or research and development (R&D) credits to the extent such taxpayers invest in assets that qualify for bonus depreciation. Delayed Recognition of Cancellation of Debt Income To benefit certain businesses that buy their own debt at a discount, the new law lets the businesses recognize cancellation of debt income over 10 years for specified types of business debt repurchased by the business in 2009 or 2010. Qualified Small Business Stock The new law increases the exclusion for gain from the sale of certain small business stock held for more than five years from 50% to 75% for stock issued after the enactment date and before 2011. S Corporation Holding Period The new law temporarily shortens the holding period of assets subject to the built-in gains tax from 10 years to 7 years. Estimated Taxes The new law decreases required estimated tax payments for individuals whose incomes primarily come from a small business in 2009. Rather than being required to make quarterly estimated tax payments based on 100% of their 2008 returns, the new law allows computation based on 90%. To qualify, the individual’s adjusted gross income must be less than $500,000 and he or she must certify that more than 50% of the gross income shown on his or her return for the prior tax year was income from a small business. Income from a small business generally means income from a trade or business with an average number of employees of 500 or fewer.