American Recovery and Reinvestment Act-Part 2 of 3

The American Recovery and Reinvestment Act of 2009 was chocked full of many tax relief items to individual taxpayers and small businesses.  While the specifics of the Act were subjected to many last minute changes in both the House and Senate, the outcome reflects Congress’ attempt to give targeted tax benefits to the middle and lower class Americans.  At the same time, it seeks to boost economic recovery by allowing small businesses certain tax breaks.  In the second of three blog posts, we will discuss some additional individual tax breaks that include the homebuyer’s credit, new car sales tax deductions and residential energy credits.

Homebuyer’s Credit

The act increases the maximum amount of the first-time homebuyers credit from $7,500 to $8,000 and eliminates the repayment requirement for houses purchased in 2009.  The “enhanced” credit 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 at 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 used it as a principal residence within three years after purchase. The waiver of recapture isn’t retroactive to before 2009, unfortunately.

New Car Sales Tax Deduction

Buyers of new cars and light trucks between February 17, 2009 and the end of the year may deduct the portion of state and local sales and excise taxes attributable to the first $49,500 of the vehicle’s purchase price. This is an above-the-line deduction and is allowed against alternative minimum tax (AMT).  The deduction will be phased out for single taxpayers with modified adjusted gross income in excess of $125,000 for the tax year ($250,000 for joint filers).  Taxpayers who elect to take the state and local sales tax deduction in lieu of deducting state and local income taxes (on Schedule A) cannot also take the new car sales tax deduction.  

Residential Energy Credits

Certain energy saving improvements to taxpayer’s principal residence are eligible for a tax credit of 30% of cost, and the lifetime cap raises from $500 to $1,500 for property put in use in 2009 and 2010. Property such as new windows and doors, insulation, and certain energy-efficient property or improvements are eligible for this credit.  Qualified solar electric property costs, qualified solar water heating property costs, qualified wind energy property costs, and qualified geothermal heat pump property costs have no limitation on the 30% cost credit.

 

Next week, our final discussion of the American Recovery and Reinvestment Act of 2009 (Part 3) will discuss the small business tax breaks.  For additional information, please  For additional information, please talk with Brent McClure at Kiesling Associates.

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