What are the Key Extensions in the Recovery Act ?

Business Provisions:

Extenders — ARRA extends several business tax provisions enacted in the stimulus legislation of 2008, including:

Fifty Percent Bonus Depreciation is extended for expenditures made in 2009 and for certain longer-lived assets in 2010.

Section 168(k)(4) Election to Accelerate AMT or R&D Credits is extended. Last year’s stimulus legislation allowed businesses to elect to accelerate the recognition of AMT credits or R&D credits in lieu of bonus depreciation. This election is now extended until January 1, 2009. The amount that may be accelerated is based on the amount that each taxpayer invests in property that would otherwise qualify for bonus depreciation. The amount is capped at the lesser of 6% of historic AMT and R&D credits or $30 million.

Small Business Expensing Rules are extended. In the 2008 stimulus legislation, Congress increased the expensing provisions for small businesses to $250,000 for assets purchased in 2008, and phased out the limitation for businesses that purchased more than $800,000 in assets. This rule is extended for 2009.

Other Business Provisions — ARRA includes a variety of business tax benefits, including:

NOLs the Carryback Period Extended to Five Years (instead of two) for businesses with $15 million or less in revenues beginning with 2008 NOLs. Carryback elections made previously can be changed but only once and must be made on a timely basis. The IRS is to provide appropriate guidance.

Temporary Estimated Tax Relief for Small Businesses is granted. For a tax year that begins in 2009, if an individual has adjusted gross income below $500,000 and more than 50% of that income comes from a small business, the individual will not incur a penalty for underestimating taxes if the payments made are equal to at least 90% of the tax liability for the year. For this provision a small business is defined as a business with fewer than 500 employees.

Small Business Stock Capital Gains — an individual who invests in the stock of a small business and holds that investment for at least five years may exclude up to 75% of the gain realized on the disposition of that stock, provided certain requirements are met. This provision is effective for investments made after the date of enactment and before January 1, 2011. For this purpose, a small business is defined as a corporation with less than $50 million in gross assets.

Holding Period to Avoid S Corporation Built-in Gains Tax is temporarily reduced from ten to seven years. Prior to enactment of the new legislation, a C corporation converting to S corporation status had to hold assets for at least ten years to avoid tax on any built in gains in the assets. The legislation reduces the threshold to seven years, but only for sales occurring in 2009 and 2010.

The Enhanced Work Opportunity Credit Expanded — the categories of out-of-work individuals for which an employer can obtain the Work Opportunity Credit now includes unemployed veterans and disconnected youth. There are specific eligibility criteria for each. This credit is available for 2009 and 2010, and for any employee who started work after December 31, 2008.

Delayed Recognition of Certain Cancellation of Debt Income — under current law, a taxpayer generally has income where the taxpayer cancels or repurchases its debt for an amount less than its adjusted issue price. The amount of cancellation of debt income (“CODI”) is the excess of the old debt’s adjusted issue price over the repurchase price. Certain businesses will be allowed to recognize CODI over 10 years (defer tax on CODI for the first four or five years and recognize this income ratably over the following five taxable years) for specified types of business debt repurchased by the business after December 31, 2008 and before January 1, 2011. This may provide an opportunity for some debt issuers to buy back their obligations at current discounted levels and delay recognition of the resulting cancellation of indebtedness income.