The popular First-Time Homebuyer Tax Credit and Five-Year Carryback of Net Operating Loss ("NOL") will be around for a little longer. The Worker, Homeownership, and Business Assistance Act of 2009 (the "Act") hopes to provide a boost to the economy through those incentives, in addition to other changes.
First-Time Homebuyer Tax Credit Extended and Expanded
The First-Time Homebuyer Tax Credit initially provided first-time homebuyers--those who did not own a principal residence for three years prior to the purchase of the principal residence--with an interest-free loan of 10% of the purchase price up to $7,500. The loan was then repayable in equal installments over 15 years. The American Recovery and Reinvestment Act of 2009 ("ARRA") improved the First-Time Homebuyer Tax Credit for purchases made after December 31, 2008 and before December 1, 2009. ARRA increased the maximum amount of the incentive to $8,000 and changed the incentive to an actual credit that first-time homebuyers do not need to repay if they live in the house for at least 36 months.
The Act extends the First-Time Homebuyer Tax Credit to purchases closing before May 1, 2010, or July 1, 2010 if a homebuyer enters into a written binding contract before May 1, 2010 and closes on the purchase before July 1, 2010. In addition, the Act has increased the phase-out starting amounts from a modified adjusted gross income of $75,000 for individuals under ARRA to $125,000 under the Act, and a modified adjusted gross income of $150,000 for joint filers under ARRA to $225,000 under the Act.
The Act expands the First-Time Homebuyer Tax Credit to "long-time residents," which are individuals who have owned and used the same residence as a principal residence for any five-consecutive-year period during the previous eight-year period. The eight-year period ends on the date of the purchase of the new principal residence. The credit amount for these long-time residents is the lesser of 10% of the purchase price of the new principal residence or $6,500.
The Act allows individuals to claim the First-Time Homebuyer Tax Credit on their 2009 tax returns for principal residence purchases that occur in 2010. The First-Time Homebuyer Tax Credit continues to be available to unmarried individuals buying a house together. Under IRS Notice 2009-12, unmarried individuals have a great degree of flexibility as to how to allocate the credit between them.
Additionally, the following limitations and requirements apply to the First-Time Homebuyer Tax Credit:
- The purchase price of the principal residence must be $800,000 or less.
- The taxpayer or spouse must be 18 years old on the purchase date of the principal residence.
- The principal residence cannot be purchased from a relative or spouse.
- The taxpayer cannot receive the credit if the taxpayer is a dependent of another taxpayer.
- The taxpayer must attach a copy of the purchase settlement statement to the tax return claiming the credit.
NOL Increased Carryback Period Extended to Nearly All U.S. Businesses
ARRA allowed an "eligible small business" to elect to carryback NOLs arising in 2008 for three, four, or five years, instead of the normal two years. An eligible small business is defined as a business with average annual gross receipts of less than $15 million for the three-year period ending with the year the NOL arose.
The Act extends the five-year NOL carryback period to nearly all U.S. businesses for either the 2008 or 2009 tax year. The extension applies to life insurance companies. The extension generally is not available for federal mortgage agencies, companies receiving funds under the Emergency Economic Stabilization Act of 2008 ("ESSA") after the Act's enactment, ESSA companies where the federal government acquired stock or a right to acquire stock in the company before the Act's enactment, or members of affiliated groups of these companies. If an eligible small business elected to carryback 2008 NOLs for the extended period under ARRA, then the business may also elect to carryback 2009 NOLs for the extended period under the Act.
The NOL carryback for the fifth year of the carryback period is limited to 50% of the taxable income for that year. Under the Act, a taxpayer may revoke a prior election not to carryback an NOL for a tax year ending before the Act's enactment by the taxpayer's 2009 return due date, including extensions. The Act suspends the 90% limitation on NOL use for determining the alternative minimum tax.
FUTA Surtax Extended
The Act extends the 0.2% FUTA surtax through June 30, 2011, keeping the FUTA tax rate at 6.2% through that date.
Increased Penalty for Failing to File Partnership or S Corporation Tax Returns
The Act increases the per partner or S corporation shareholder per month penalty for failing to file a partnership or S corporation tax return. The penalty goes from $89 to $195 for tax years beginning after December 31, 2009.
E-Filing by Tax Return Preparers
The Act requires that paid tax return preparers who prepare or reasonably expect to prepare 10 or more individual, estate, or trust tax returns e-file all tax returns filed after December 31, 2010.
Corporate Estimated Taxes Increased
The Act increases by 33% the required estimated tax payments due in July, August or September of 2014 for corporations with assets of $1 billion or more.
Worldwide Allocation of Interest
The Act delays the worldwide allocation of interest rules provided for under the American Jobs Creation Act of 2004 until after December 31, 2017.
We Can Help
For more information regarding these tax-related provisions in The Worker, Homeownership, and Business Assistance Act of 2009, contact practice group chair Paul Jackson, 231.727.2626 or firstname.lastname@example.org, on the west side of Michigan, Jay Kennedy, 248.784.5180 or email@example.com, on the east side of Michigan, or any member of Warner Norcross & Judd's Tax Law Group.