On February 13, 2009, Congress passed the American Recovery and Reinvestment Act of 2009 (“Act”). President Obama signed the Act into law on February 17, 2009. The Act provides a series of direct spending and tax incentives for individuals and businesses to jump start the U.S. economy. This $787 billion Economic Stimulus Package includes provisions related to the construction industry. We have outlined these provisions in this issue.
An important focus of the Act is increased investment in America’s physical infrastructure. The provisions of the new Bill provide for additional spending on several key infrastructure programs including:
- Transportation Infrastructure - Includes highway and bridge construction, high speed rail corridors, airport improvement grants, transit improvements, and TSA explosive detection systems. Total appropriations of approximately $49 billion.
- Water and Environmental Infrastructure - Includes clean water investments, other water resource expenditures and environmental cleanup. Total appropriations of approximately $21 billion.
- Building Infrastructure - Includes GSA federal buildings and facilities, military construction, VA construction, school construction, housing facilities expenditures, and other facilities expenditures. Total appropriations of approximately $29 billion.
- Energy/Technology Infrastructure - Includes wireless/broadband, electricity grid, weatherization and energy grants. Total appropriations of approximately $30 billion.
In addition to infrastructure investment, numerous other provisions of the Act should add to demand for construction including “Build America” bonds, qualified school construction bonds, recovery zone bonds, renewable energy and energy conservation.
Other important business incentives in the legislation that may help the construction industry include:
Increased Expensing Under Code Section 179
The Act extends the current 2008 expensing rules under Code Section 179 for 2009. Therefore, for 2009, businesses will be able to expense up to $250,000 of capital acquisitions. The threshold for reducing the deduction remains at $800,000 which was also the 2008 level.
The Act extends the 50% first-year bonus depreciation allowed under the 2008 Economic Stimulus Act through December 31, 2009. Therefore, taxpayers will temporarily be able to deduct immediately 50% of the cost of applicable assets acquired with depreciable lives of 20 years or less.
The Act decreases estimated tax payments for individuals whose income comes primarily from a small business in 2009. Rather than being required to make quarterly estimates tax payments based on 100% of their 2008 returns, the Act allows computation based on 90%.
Important individual incentives in the legislation include:
Making Work Pay Credit
The Making Work Pay Credit allows for a maximum credit of $400 for single persons and $800 for couples. The credit applies retroactively to the start of 2009 and extends through 2010. The credit phases out as income exceeds $75,000 for single filers and $150,000 for couples. Only individuals with earned income qualify for the credit which is generally received through a reduction in wage withholding.
The Act includes a one year patch for 2009 to reduce the application of the Alternative Minimum Tax (AMT). The 2009 AMT exemption amounts are $70,950 for joint filers and surviving spouses, and $46,700 for individuals.
First Time Homebuyer Tax Credit
The Act increases the current $7,500 first-time homebuyer credit to $8,000 and extends it at that level through November 30, 2009. The credit does not have to be repaid if the homeowner remains in the home for at least 36 months. The credit phases out for taxpayers with adjusted gross income in excess of $75,000 ($150,000 for joint filers). Taxpayers can elect to treat the purchase as made on December 31, 2008 to claim the credit sooner.
New Car Deduction
The Act provides a deduction to taxpayers who purchase an automobile in 2009 for the sales and excise taxes paid on the purchase. The deduction does not apply to automobile loan interest payments. The deduction is phased out for taxpayers with adjusted gross income exceeding $125,000 ($250,000 for joint returns).
American Opportunity Tax Credit
For 2009 and 2010, the Act increases the Hope Credit to equal the sum of 100% of qualified tuition and related expenses paid by the taxpayer not to exceed $2,000, plus 25% of such expenses paid in excess of $2,000, but not to exceed $4,000. The credit begins to phase out at an income level of $80,000 ($160,000 for a joint return). The maximum $2,500 credit can now be claimed for all four years of college.
Energy Tax Incentives
The Act provides many energy tax incentives including residential energy efficient property credit, renewable electricity production credit, and energy investment credit.
Under U.S. Treasury Department guidelines, we hereby inform you that any tax advice contained in this communication is not intended or written to be used, and cannot be used by you for the purpose of avoiding penalties that may be imposed on you by the Internal Revenue Service, or for the purpose of promoting, marketing or recommending to another party any transaction or matter addressed within this tax advice. Further, RubinBrown LLP imposes no limitation on any recipient of this tax advice on the disclosure of the tax treatment or tax strategies or tax structuring described herein.
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