New Legislation Extends Incentives
for Homebuyers and Businesses

On November 6, 2009, President Obama signed into law The Worker, Homeownership, and Business Assistance Act of 2009 (H.R. 3548). The new law extends the first-time homebuyer tax credit, providing a reduced credit to current homeowners buying a new principal residence and permitting higher-income taxpayers to claim the credit. In addition, the legislation expands the recently enacted five-year net operating loss carryback provision for small businesses to businesses of all sizes.

According to the White House, the new legislation was designed to build on the foundation laid by the American Recovery and Reinvestment Act of 2009 (ARRA) by helping spur job creation and assist struggling workers. The law includes the following provisions:

Expansion of the First-Time Homebuyer Credit: The new law extends the $8,000 tax credit for first-time homebuyers, which was due to expire on November 30, 2009, to April 30, 2010. In addition, current homeowners who wish to purchase a new home may be eligible to receive a tax credit of up $6,500. To qualify for this smaller credit, taxpayers must currently own a home, have owned and lived in their home for any consecutive five-year period during the previous eight years, and buy the replacement principal residence (second homes do not qualify) between November 7, 2009 and April 30, 2010. The new law extends a similar credit until May 2011 to military personnel serving overseas. For qualifying purchases in 2010, taxpayers have the option of claiming the credit on either their 2009 or their 2010 return.  

The new law also raises the homebuyer credit income limits for homes purchased after November 6, 2009. The credit phases out for single filers with modified adjusted gross income (MAGI) between $125,000 and $145,000, or between $225,000 and $245,000 for joint filers (the previous MAGI phaseouts of $75,000 to $95,000 for single filers and $150,000 to $170,000 for joint filers apply to purchases on or before November 6, 2009). To qualify for the credit, the purchase price of the principal residence may not exceed $800,000. While the homebuyer credit generally does not have to be repaid, a taxpayer may have to pay back the credit if the new home ceases to be his or her principal residence within 36 months.

In addition, the legislation contains measures intended to combat tax fraud. To receive a homebuyers credit, taxpayers must be at least 18 years of age, may not be a dependent, and must attach a properly executed settlement statement to their return.

Net Operating Loss (NOL) Carrybacks Extended: Businesses are generally permitted to “carry back” NOLs to the previous two tax years, which may generate a tax refund for a preceding year. Under ARRA, qualified small businesses, defined as those that averaged less than $15 million in gross receipts over the past three years, were permitted to carry back 2008 losses for up to five years, instead of two. Under the new legislation, all businesses, regardless of size, will be permitted to carry back NOLs for up to five years for losses incurred either in 2008 or 2009, but not for both years, with a 50% income limit on NOL offsets in the fifth year. Small businesses that elected to carry back 2008 NOLs under ARRA provisions may do so a second time for 2009.

The Worker, Homeownership, and Business Assistance Act of 2009 also provides an additional 14 weeks of emergency unemployment compensation (EUC) in all states, and six additional weeks of EUC in states with unemployment rates of 8.5% or higher. However, it does not extend the temporary exclusion of unemployment benefits from gross income, provided by ARRA.

To fund the new tax breaks, the new law requires electronic filing of individual returns prepared by paid return preparers, increases the penalties for failure to file a partnership or S corporation return, accelerates estimated tax payments for certain large corporations, delays the implementation of worldwide interest allocation until 2018, and extends the FUTA (Federal unemployment) surtax through June 30, 2011.

For more information on the Worker, Homeownership, and Business Assistance Act of 2009, give us a call.