2009 Stimulus Bill: Tax Provisions

2009 Stimulus Bill

The American Recovery and Reinvestment Act of 2009 (H.R.1)

Tax Provisions

The American Recovery and Reinvestment Act of 2009 (the "Act") was passed by both houses of Congress late last week and was signed by President Obama on Monday, February 16.

The Act contains numerous tax provisions some of which are:

Alternative Minimum Tax ("AMT"). For 2009, the AMT exemption is increased to $70,950 for joint filers and to $46,700 for single filers.

529 Plan payments for computer equipment. For 2009 and 2010, 529 plans can pay for computers, internet access and other computer related expenses. The beneficiary of the 529 plan must be enrolled at an educational institution. Under this provision the computer and related equipment and services can be used by both the beneficiary and the beneficiary's family. Therefore, it appears a 529 plan can pay for computer and related equipment used at home. There is no requirement that the beneficiary be enrolled "full time" - part time enrollment seems sufficient.

First Time Homebuyer's Credit: First time homebuyers are entitled to credit of $8,000 if the purchase is made in 2009 - but prior to December 1, 2009. The $8,000 does not have to be repaid to the IRS. Previously, the credit was $7,500, would have expired on June 30, 2009 and would have had to be repaid over 15 years. The term "First Time Homebuyer" was not changed and means someone who has not owned or purchased a home in the three year period ending on the date of the purchase of new residence. The home must be the taxpayer's primary residence - vacation homes do not qualify for the credit. The new residence can be a house, a condominium, a recreational vehicle or a boat. As under prior law, the credit is phased out for joint filers with "modified adjusted gross income" of $150,000, and is not allowed to joint filers with "modified adjusted gross income" exceeding $170,000.

Deduction for Sales Tax on Purchases of Motor Vehicles. The Act allows for a deduction for the sales tax paid on a motor vehicle purchase. The deduction is limited to the sales tax generated by the first $49,500 of the motor vehicle's sales price. "Motor vehicles" includes cars, light vans, motorcycles and recreational vehicle. The deduction is limited if the taxpayer's income is more than $250,000 on a joint return and $125,000 on returns for single filers. The deduction for the sales tax is allowed even to taxpayers that do not itemize deductions.