Bill extends ability to deduct losses, adds tax credit

NORTH BAY – Residential real estate builders, banks, mortgage brokers and new homeowners stand to be positively impacted by American Recovery and Reinvestment Act of 2009, commonly referred to as the “stimulus package.”

There are several items that look to be certain to pass due to their appearance on both the Senate and the House versions of the bill. The bill passed in the House on Jan. 28, went to the Senate on Feb. 2 and will eventually end up in the Joint Committee on Taxation.

“This is moving a lot faster than anybody thought,” said Chris Paris, senior manager in the Santa Rosa office of Burr Pilger Mayer.

The net operating loss carry back is in both the House and Senate bills and would increase the carry-back period from two years to up to five. Unlike the required two-year carry back that is currently the case, the filer would decide how far to go back and apply it to either 2008 or 2009 filing.

“This will pass,” Mr. Paris said. “This will be a huge benefit for residential home builders who had significant tax liabilities back in 2003 to 2005.”

By extending the carry-back period of operating losses from two years to five years, companies can obtain refunds in the current tax year rather than waiting until they have a gain in a future year. This will provide immediate stimulus to the economy by putting those funds in the hands of the businesses now rather than in the future, Mr. Paris said.

The proposal will cost an estimated $17.2 billion over 10 years.

Also in both the House and Senate bills are bonus depreciation and the enhanced code section 179.

Both the House and Senate bills would extend first-year 50 percent bonus depreciation to 2009 and 2010 for certain longer-lived and transportation property. This will cost an estimated $5.3 billion over 10 years.

Both the House and Senate bills would extend the enhanced code section 179. Currently, until the end of 2010, small business taxpayers can write-off up to $125,000 of capital expenditures. Last year, this amount was increased to $250,000. The bill would extend temporary increases into 2009. This proposal will cost an estimated $41 million over 10 years.

For individuals, there is another first-time homebuyer tax credit on the books.

Last year Congress passed a first-time homebuyer credit of $7,500, which was to be paid back over the course of 15 years, amounting essentially to an interest-free loan. This time the patch would be reinstated and increased to $15,000. Additionally, the homebuyer will not have to pay it back at all.

“This is big,” Mr. Paris said. “This could generate a lot of movement in the housing market.”