President Obama has signed the much anticipated American Recovery and Reinvestment Act of 2009 ("Recovery and Reinvestment Act") into law. The Recovery and Reinvestment Act was designed to stimulate broad based growth to the economy and provide tax relief to individuals and businesses. The most relevant tax provisions addressed in the Recovery and Reinvestment Act are detailed below:


"Making Work Pay" Credit
Provides tax credits equal to 6.2% of earned income not to exceed $400 for single returns and $800 for joint returns in 2009 and 2010. The credit is phased-out at adjusted gross income ("AGI") in excess of $75,000 ($150,000 for joint filers).

Economic Recovery Payment
Provides for a one-time payment of $250 to retirees, disabled individuals and Social Security beneficiaries and recipients receiving benefits from the Social Security Administration and Railroad Retirement beneficiaries. Also includes veterans receiving disability compensation and pension benefits from the U.S. Department of Veterans’ Affairs. The payment reduces the "Making Work Pay" credit.

Refundable Credit for Certain Federal and State Pensioners
Provides a one-time refundable tax credit of $250 in 2009 to certain government retirees who are not eligible for Social Security benefits. The credit reduces the "Making Work Pay" credit.

Unemployment Compensation Exclusion
Exempts from tax the first $2,400 of unemployment benefits received by a recipient in 2009.

Expanded Earned Income Tax Credit
Increases the credit for families with three or more children and increases marriage penalty relief in 2009 and 2010.

Expanded Child Tax Credit
Increases the eligibility for the refundable child tax credit in 2009 and 2010 by lowering the threshold to $3,000 (from $8,500 in 2008).

"American Opportunity Tax" Credit
Creates a $2,500 higher education tax credit that is available for the first four years of college. The credit is subject to a phase-out for AGI in excess of $80,000 ($160,000 for joint filers). The new credit temporarily replaces the Hope Credit.

Computers as an Education Expense
Permits computers and computer technology to qualify as qualified education expenses in 529 education plans in 2009 and 2010.

Expanded Credit for First-Time Home Buyers
Increases the refundable tax credit up to $8,000 for first-time home buyers purchasing homes on or after January 1, 2009 and before December 1, 2009. The credit is subject to phase-out for taxpayers with AGI in excess of $75,000 ($150,000 for joint filers).

Deduction for New Car Purchasers
Allows taxpayers to deduct state and local sales taxes paid on the purchase of a new automobile, including light trucks, SUVs, motorcycles and motor homes. The deduction phases-out starting for taxpayers with an AGI in excess of $125,000 ($250,000 for joint filers). The deduction is allowed for those who itemize their deductions and non-itemizers. The deduction, however, cannot be taken by a taxpayer who elects to deduct state and local sales taxes in lieu of state and local income taxes.

Alternative Minimum Tax ("AMT") Patch
Increases the AMT exemption amounts for 2009 to $46,700 for individuals and $70,950 for joint returns and allows the personal credits against the AMT.

COBRA Subsidy
Provides a 65% subsidy for COBRA continuation premiums for up to nine months for workers who have been involuntarily terminated, and for their families. The availability of this subsidy must be included in the required notice of COBRA continuation coverage.


Extension of Bonus Depreciation
Allows the immediate write-off of 50% of the cost of qualifying depreciable property acquired in 2009.

Extension of Enhanced Small Business Expensing (Section 179)
Allows the write-off of capital expenditures incurred in 2009 up to $250,000. The accelerated deduction is phased-out once qualified expenditures reach $800,000.

Expanded Loss Carryback of Net Operating Losses
Extends the maximum NOL carryback period from two years to five years for small businesses with gross receipts of $15 million or less.

Incentives to Hire
Allows a work opportunity tax credit equal to 40% of the first $6,000 of wages paid to employees of one of nine targeted groups.

Extension of Monetization of Accumulated AMT and R&D Credits
Extends the provision contained in the Foreclosure Prevention Act of 2008 and allows AMT and loss taxpayers in 2009 to receive 20% of the value of their old AMT or research and development ("R&D") credits to the extent such taxpayers invest in assets that qualify for bonus depreciation.

Delayed Recognition of Cancellation of Debt Income
Allows cancellation of debt income ("CODI") to be recognized over ten years (defer tax on CODI for the first four or five years and recognize this income ratably over the following five tax years) for specified types of business debt repurchased by the business in 2009 or 2010.

Qualified Small Business Stock
Increases the exclusion for gain from the sale of certain small business stock held for more than five years from 50% to 75% for stock issued after the enactment date and before 2011.

S-Corporation Holding Period
Temporarily shortens the holding period of assets subject to the built-in gains tax from ten years to seven years.

Repeal of Built-In Loss Rules
Provides a prospective repeal of Notice 2008-83, which provided that if a bank recognizes a loss from the disposition of a loan or takes a bad debt deduction under the specific charge-off or reserve methods of accounting after a change in ownership, that loss or deduction will not be treated as a built-in loss attributable to the pre-acquisition period.


Extension and Modification of Renewable Energy Production Tax Credit
Extends the placed-in-service date for wind facilities for three years (through December 31, 2012). It also extends the placed-in-service date through December 31, 2013 for certain other qualifying facilities: closed-loop biomass, open-loop biomass, geothermal, small irrigation, hydropower, landfill gas, waste-to-energy and marine renewable facilities.

Election to Claim the Investment Tax Credit
Facilities that produce electricity from solar facilities are eligible to take a 30% investment tax credit in the year the facility is placed in service. Facilities that produce electricity from wind, closed-loop biomass, open-loop biomass, geothermal, small irrigation, hydropower, landfill gas, waste-to-energy and marine renewable facilities are eligible for a production tax credit, payable over a ten-year period. The Act provides a temporary election to claim the investment tax credit in lieu of the production tax credit.

Business Energy Credit
Enhances the business energy credit by eliminating the cap on small wind property and repealing the basis reduction requirement for subsidized energy financing.

Energy-Efficient Existing Homes
Extends the tax credits for improvements to energy-efficient existing homes through 2010. The amount of the tax credit is increased from 10% to 30% of the amount paid or incurred by the taxpayer for qualified energy efficiency improvements during the tax year. The property-by-property dollar caps on the tax credit are also eliminated, and an aggregate $1,500 cap applies to all property qualifying for the credit.

Residential Energy Property
Removes the dollar limitations on certain energy credits; e.g.: for qualified small wind energy property ($4,000 cap); for qualified solar water heating property ($2,000 cap) and qualified geothermal heat pumps ($2,000).

Tax Credits for Alternative Fuel Pumps
Provides an increase for 2009 and 2010 in the 30% alternative refueling property credit for businesses (capped at $30,000) to 50% (capped at $50,000).

Credit for Investment in Advanced Energy Facilities
Establishes a new manufacturing investment tax credit for investment in advanced energy facilities, such as facilities that manufacture components for the production of renewable energy, advanced battery technology and other innovative next-generation green technologies.

Provides a tax credit for purchases of plug-in electric drive vehicles ranging from $2,500 to $7,500 depending on battery capacity. The new law also restores and updates the electric vehicle credit for plug-in electric vehicles that would not otherwise qualify for the larger plug-in electric drive vehicle credit and provides a tax credit for plug-in electric drive conversion kits.

Funding for Bonds
Authorizes additional funds for new clean renewable energy bonds and qualified energy conservation bonds.

The Recovery and Reinvestment Act incorporated many of the individual tax policies proposed by President Obama prior to taking office. Several provisions were adopted as previously outlined in our November 12, 2008 Client Alert: The Tax Policies of the New President (i.e. Expanded Earned Income Tax Credit, exemption of certain unemployment benefits, and R&D tax credits), others were adopted with minor changes (i.e. the "Making Work Pay" Credit, the "American Opportunity Tax" Credit and employment credit). In addition, some policies have yet to be implemented (i.e. increasing certain marginal tax rates, permanency of the estate tax exclusion and additional social security tax).

For more information about any of these provisions, please contact an attorney in the Armstrong
Teasdale Tax Department by calling 314.621.5070 or e-mail:

Joseph D. Demko

Guy A. Schmitz

Scott E. Hunt

Larry M. Sewell

John E. Dooling, Jr.

Daniel Cooper

Robert Lewis Jackson

Christopher J. Anderson

Jonathan W. Igoe

Jill M. Palmquist

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