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Saturday, November 07, 2009

SUMMARYOF NEW TAX ACT PROVISIONS

Congress passed last week the Worker, Homeownership, and Business Assistance Act of 2009. President Obama is expected to sign the new Act. Below is a summary of key provisions:

A. Expansion of 5 Year NOL Carrybacks. The ability to carry back NOL’s for 5 years (instead of the normal 2 years) has been expanded to include 2009 losses  (previously the 5 year rule only applied to 2008).  The rule has been expanded to include most taxpayers, not just the small businesses it applied to before. Other than taxpayers who have already carried back 2008 NOLs, only one extended carryback is allowed. There is also a 50% of taxable income limit to the use of the carryback to the 5th carryback year.

B. Suspension of 90% NOL Limitation for Alternative Minimum Tax Purposes. For tax years ending after 2002, the Act suspends the 90% limitation on the use of any alternative tax NOL deduction attributable to the carryback of an applicable NOL for which the extended carryback period is elected.

C. Extension of Extra .2% FUTA Surtax. The 6.2% FUTA tax rate continues to apply through June of 2011, and the 6.0% rate applies for the remainder of calendar year 2011 and for later years.

D. Increased Late Filing Penalties for S Corporations and Partnerships. Once upon a time, there typically was no penalty for late filing of an S corporation or partnership income tax return. Now it is $89 per owner per month. Under the new law, it will now be $195 per owner per month. This is irksome. Clearly, the current increase is not being made due to a compliance problem that is sought to be reduced. Instead, it is only a hidden tax – increasing revenues through penalties instead of an outright tax increase.

E. First Time Homeowner Credit Extended and Expanded. This credit is now extended to principal residence purchases purchased before May 1, 2010 (or a purchase closed before July 1, 2010 if a contract is entered into before May 1, 2010). The credit phases out for higher income taxpayers. Taxpayers who have stayed in their residence for a 5 year consecutive period will be deemed “first time homeowners” if they acquire a new residence. A residence cannot exceed $800,000.

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