Analysis of the American Recovery & Reinvestment Act of 2009

 Making Work Pay Credit  American Opportunity Credit  First-Time Homebuyer Credit  New car sales tax deduction  Expanded tax breaks for going green  Business Tax Breaks  Who’s Getting Hosed?

 This is a tax credit equal to the LESSER of: ◦ 6.2% of earned income ◦ $400 for single filers ($800 for joint filers)  The credit is refundable-your refund can be larger than the amount of withholding you paid in  Phases out at incomes of $75,000 for single filers ($150,000 for joint filers)  Available only for 2009 and 2010

 The Hope Credit has been renamed the American Opportunity credit.  The credit is now available for four years of college (under the old law, it was only available for the first two years of college)  Credit equals 100% of first $2, % of the next $2,000 for a maximum credit of $2,500  40% of the credit is refundable (under the old law, the credit was not refundable)  The phase-out limits have been raised substantially to $80,000 for single filers ($160,000 for joint filers)

 Section 529 plan withdrawals are now available for computers and computer technology purchases (including internet access)

 The first time homebuyer’s credit has been enhanced  The credit equals 10% of the purchase price up to a maximum credit of $8,000  There is no longer a repayment requirement if the home is lived in for at least 36 months  The credit applies to home purchases between 1/1/09 and 11/30/09  Phases out at $75,000 for single filers ($150,000 for joint filers)

 If you already itemize, this deduction isn’t new because sales tax on large purchases has been deductible for the past few years  It helps people who don’t itemize because they can take the deduction “above-the-line”  The credit applies to cars, light trucks, SUVs, or motorcycles with costs up to $49,500  Phases out at incomes of $125,000 for single filers ($250,000 for joint filers)

 The increased Section 179 deduction of $250,000 for fixed asset purchases has been extended to 2009  The 50% bonus depreciation deduction has been extended to 2009  Net Operating Losses can now be carried back up to 5 years-this can put cash in your pocket sooner than if you had to carry the losses forward into future years

 New & Extended credits for ◦ alternative fuel vehicles ◦ energy efficient home improvements ◦ energy efficient business property

 If the Bush tax cuts expire January 1, 2011, the 33% and 35% tax rate will increase to 36% and 39.6%, respectively. ◦ This will apply to single filers with income over $200,000 and joint filers with income over $250,000

 The capital gains rate for higher income individuals will increase to 20% from 15%

 Normally, itemized deductions are deducted at the taxpayer’s tax rate.  Under the new law, the deduction rate is limited to 28%. Example: Someone in the 35% tax bracket makes a $10,000 charitable contribution. The reduction in tax is $3,500 ($10,000 * 35%) Under the new law, this person’s itemized deduction will be deducted at the maximum 28% rate. The reduction in tax is now only $2,800.