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HORNE Tax Alert

Worker, Homeownership and Business Assistance Act of 2009

On November 6, 2009, President Obama signed the Worker, Homeownership and Business Assistance Act of 2009. The primary focus of the bill is the extension of unemployment benefits, but there are two significant income tax benefits that you need to be aware of that were also provided by this legislation:

Extension and Liberalization of Homebuyer Credit

Under prior law, a qualifying first-time homebuyer could take a credit against their income taxes for 10% of the purchase price of a principal residence, up to a maximum credit of $8,000. The credit was set to expire on November 30, 2009. This new legislation extends the credit to binding written contracts to purchase a residence before May 1, 2010, to close before July 1, 2010.

In addition, any purchases can be treated as if made in the previous calendar year. Thus, a purchase of a qualified residence in the first four months of 2010 can qualify for the credit on the purchaser's 2009 individual income tax return.

For purchases after November 6, 2009, you are also eligible for the credit if you have maintained the same principal residence for any five consecutive year period during the eight year period ending on the date of the purchase of the new residence. The maximum allowable credit for such taxpayers is $6,500, or 10% of the purchase price of the new residence.

Also, under prior law, the homebuyer credit was phased-out for taxpayers with modified adjusted gross income (AGI) between $75,000 and $95,000 ($150,000 and $170,000 for joint filers) for the year of the purchase.  Under the new law, for purchases after November 6, 2009, the credit phases-out for taxpayers with AGI between $125,000 and $145,000 ($225,000 and $245,000 for joint filers) for the year of purchase.

Some restrictions and limitations on the revised credit you need to be aware of:

• If the residence ceases to be your primary residence within 36 months from the date of purchase, you must repay the credit.
• No credit is allowed if the purchase price exceeds $800,000.
• Dependents and persons under 18 are not eligible for the credit.
• You must attach a copy of your settlement statement to your return.

Business New Operating Loss Carryback Period

Under prior law, businesses that incurred a net operating loss on their tax returns could carry that loss back two years to offset taxable income, resulting in tax refunds. "Eligible small businesses" with losses in 2008 could elect to carryback losses three, four, or five years rather than two years. The new law provides the extended carryback period to all businesses with a net operating loss for either 2008 or 2009 (but not both, except for those "eligible small businesses").

In addition, if the business elects to carryback the loss five years, the amount of loss applied is limited to 50% of taxable income in that fifth year, then 100% of taxable income in all other years.

For further explanations and analysis, please contact your HORNE advisor or local HORNE office.