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.
The purpose of this e-newsletter is to provide an overview of this new law provisions that will have the most impact on automotive dealers. However, as with most tax revisions, the Act is complicated and the devil is in the details. This e-newsletter is only an executive summary of the Act and not a detailed analysis. If you have any questions regarding how this new legislation applies to your particular situation, please do not hesitate to contact your RubinBrown tax professional.
New Vehicle Sales Tax Deduction
The Act provides a deduction to individual 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).
Commentary: It is not likely that this provision will significantly boost vehicle sales. The benefits are limited to low to middle income taxpayers who are more likely to have difficulties getting financing. The bigger problem is that, buyers will not be able to use the tax savings as a down payment since they will not realize the benefit until they later file their return and get a refund.
The Act provides a five-year carryback of 2008 net operating losses (“NOL’s”), but only for qualified small businesses with average gross receipts of $15 million or less. The normal NOL period of 2 years returns for NOL’s incurred in 2009.
Commentary: This provision had the potential to provide dealerships with a quick infusion of capital from refunds of taxes paid in 2003 through 2005. Unfortunately, the carry back provision was limited to small businesses in the final draft which will exclude most dealerships.
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 Dec. 31, 2009. Therefore, businesses will temporarily be able to deduct immediately 50% of the cost of applicable assets acquired with depreciable lives of 20 years or less.
Commentary: These two provisions will probably be of little benefit to most dealerships. Few dealerships are planning facility upgrades or expansions in 2009. Dealerships will also have ample net operating losses carried over to 2009 since they are not eligible for the extended carryback provision. As a consequence, additional depreciation deductions in 2009 will have no immediate impact on cash flow or the capitalization of most dealerships.
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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