"Stimulus Bill" gives big breaks to individuals and businesses for 2009
While the popular press publicized the big expenditures for infrastructure,
health, education, and energy, the tax portion of the Stimulus Bill (the American Recovery and
Reinvestment Tax Act of 2009) is wide-ranging. Signed into law on February 17, 2009, it includes
a number of one-time breaks:
- Homebuyer credit sweetened for 2009 purchases, and allowed on 2008 returns!
Introduced in 2008, a $7,500 tax credit was available for the purchase of a main home after
April 9, 2008 and before July 1, 2009, but had to be repaid over a 15-year period starting in 2010.
It was therefore really an interest-free loan rather than a tax credit. However, the Stimulus Bill
extends the credit to purchases before December 1, 2009, raises the maximum credit for 2009 purchases
to $8,000, and eliminates the need to ever pay the credit back for property purchased in 2009,
so that it can now honestly be called a tax credit. Furthermore, it allows the credit for 2009 purchases
to be taken on tax returns for 2008. This means that new homebuyers can get an immediate benefit from
the bill on their 2008 returns, including amended returns, for purchases as late as November 30, 2009.
(The credit is claimed on Form 5405. Although named the First-Time Homebuyer Credit, it is also available
to prior homeowners if they didn't own a main home anytime in the 3 years prior to the purchase.
The new law is built into the Form 5405 that is included in the Standard and Premium Levels of Tax Preparer.)
- Unemployment compensation not fully taxable for 2009.
Traditionally, unemployment compensation is fully taxable. However, the Stimulus Bill makes the first
$2,400 nontaxable (for 2009 only), so you will report $2,400 less at line 19 of Form 1040 for 2009 returns.
(The new law is built into the latest on-line updates for Tax Preparer, omitting the first $2,400 of
unemployment compensation from line 19 of Form 1040 when the tax year on the Control Form is set to 2009.)
- AMT patch already set for 2009.
An AMT patch has been tacked onto year-end tax bills every year for the last few years to prevent the
AMT from hitting millions more middle-class taxpayers. But the Stimulus Bill already contains the patch,
with AMT exemptions modestly higher for 2009 than for 2008. (The new exemptions are built into the latest
on-line updates for Tax Preparer at line 30 of Form 6251 when the tax year on the Control Form is set to 2009.)
- Refundable child tax credit available to many more taxpayers for 2009 and 2010.
When the tax on Form 1040 limits the personal credits claimed, there may be an additional child tax credit
available if earned income is more than $8,500 for 2008. This threshold is lowered to $3,000 for 2009 and 2010,
so many more taxpayers will get this refundable tax credit in those years.
(The lower threshold is built into the latest on-line updates for Tax Preparer at line 5
of Form 8812 when the tax year on the Control Form is set to 2009.)
- Credit for energy efficient home improvements returns for 2009 and 2010.
A credit was available for expenditures in 2007 for improving the energy efficiency of your main home,
including insulation and certain heating systems. But that credit expired at the end of 2007 and was
not renewed for 2008. The Stimulus bill resurrects the prior credit and triples the credit rate for 2009 and 2010.
(These credits were claimed in Part I of the 2007 Form 5695, and did not appear on the 2008 form.)
- Dollar caps on some residential energy credits removed. Limits on most of the credits that
remained on the 2008 Form 5695 are permanently lifted starting in 2009. Thanks to the Stimulus Bill,
there are no dollar caps for 2009 and later on the credits for solar water heating and geothermal heat pumps,
which were limited to $2,000 for 2008, and small wind energy property, which was limited to $4,000 for 2008.
(The caps are lifted in the latest on-line updates for Tax Preparer at lines 8, 17, and 21 of Form 5695 when the tax year on the Control Form is set to 2009.)
- Increased depreciation expensing extended one more year.
The maximum section 179 expensing for 2008 was $250,000 (for up to $800,000 of purchases),
and was set to fall back to $125,000 (for up to $500,000 of purchases) for 2009, but is extended
through 2009 by the Stimulus Bill.
(The raised limits are extended to 2009 in the latest on-line updates for Tax Preparer, as seen in Forms 2106 and 4562 when the tax year on the Control Form is set to 2009.)
- 50% bonus depreciation extended one more year.
The 50% special depreciation allowance for new property was resurrected for 2008 alone,
but the Stimulus Bill extends this major acceleration of depreciation for one more year,
including raised limits on the depreciation of vehicles.
(The bonus depreciation is extended to 2009 in the latest on-line updates for Tax Preparer,
as seen in Forms 2106 and 4562 when the tax year on the Control Form is set to 2009.)
- Dollar caps on wind energy credits removed.
Wind credits claimed on Form 3468 were capped at $4,000 for 2008, but this cap is permanently
lifted by the Stimulus Bill for 2009 and later.
(This change is already reflected in the very late IRS release of Form 3468.)
- Tax on car purchases deductible for non-itemizers.
Sales tax on the first $49,500 for new cars and trucks can be added to the standard deduction
if purchased by the end of 2009 but after February 16, 2009.
- Extra EIC for 3 children. The earned income credit is higher in 2009 and 2010
for those with 3 or more qualifying children - 12.5% higher than that for 2 children.
- Education credits increased.
The Hope Credit is replaced by a credit with a $2,500 maximum for 2009 and 2010
(compared with $1,800), and its phase-out begins at a much higher income than 2008.
It also applies to the cost of books, unlike the Hope Credit.
- Underpayment penalty relief for small businesses.
For qualifying small businesses, estimated taxes for 2009 can be based on 90% of 2008 or 2009
(rather than 100% or 110%) without incurring a penalty.
Get ready for 2010 with a 25% discount!
If you want the peace of mind that your software will automatically handle
all the new tax laws next year, order now and get a big discount for your
early order: 25% off all software for the next filing season until April 30, 2009.
Order securely over the internet at
or phone, fax, or mail us using the Early Bird Order Form.
We accept all major credit cards in addition to personal and business checks.
Don't forget amended returns!
Several factors make amended returns important this year:
- The IRS's mid-season changes and late releases make it likely that
many new credits and deductions were overlooked this year.
Among those are investment credits on Form 3468, which include favorable treatment for
property acquired late in 2008 that prevents the AMT from limiting the credit.
- Since the Stimulus Bill lets you claim credit for 2009 home purchases on your 2008 return,
it is likely that many new homeowners will want to do so to get an immediate benefit from any
purchase through November 30, 2009.
- New above-the-line deductions normally reserved for itemizers were widely overlooked
because only a check box on Form 1040 implied their existence. This includes real estate taxes
paid and certain disaster losses, both of which can be added to the standard deduction.
It's easy with Tax Preparer. Just make a copy of the return you filed with the IRS,
then, starting with that copy, create a Form 1040X for the return. Make no entries on Form 1040X,
but change the return according to your new knowledge
(such as completing Form 3468 or Form 5405 to take advantage of new benefits).
When you're done all amounts for columns A, B, and C of Form 1040X are already completed for you,
and you just have to explain your reason for filing the form in Part II.
NEW: User's Guide updated. The on-screen version is available on-line for free,
but you can get a printed loose-leaf copy of the new manual for your HowardSoft binders.
We last updated this 300-page manual in 2001, and this one will apply for many, many years as well.
Order it now and we'll send it right away, even when you order other products for the next tax season.
It includes tips on using Tax Preparer with the latest Windows operating systems as well as full details
on the floating Tax Preparer Control Panel.