NORTH BAY – The American Recovery and Reinvestment Act of 2009 allowed businesses with fewer than $15 million in gross receipts a five-year net operating loss carryback for the 2008 tax year.
Now, the Worker, Homeownership and Business Assistance Act of 2009, or HR 3548, includes all businesses in this as well as allow the loss to be applied to either 2008 or 2009 tax returns.
“This is big,” said Chris Paris, senior tax manager with Moss Adams in Santa Rosa. “Most of our clients are over $15 million.”
For home builders and people in the construction business and for mortgage brokers and people in real estate, this means that they can go back to either 2004 or 2005 when the market was still good.
“They had very good years in 2004 and 2005. Now they have been pummeled and can use those years to get cash in their pockets,” he said.
Eligible small businesses, defined as under $5 million, can take the carryback both years.
Two points made by KBKG, a national firm focused on specialty tax services, are:
“If you are carrying your NOL back to the fifth preceding the year of the loss, you are only allowed to use NOL's up to 50 percent of the income in that year. For example, assume your NOL is $500,000 and the income in the fifth preceding year is $200,000, you are only allowed to use $100,000 in losses in the fifth preceding year and the remaining $400,000 in losses would then be used to offset income in the fourth preceding year. However, this rule does not apply to ‘eligible small businesses’ carrying losses generated in 2008, only to those generated in 2009."
The new law suspends the 90 percent limitation on use of net operating losses for AMT purposes.
HR 3548 is expected to cost $1.4 billion for 2010 for all the checks that will be written and the other provisions for first-time homebuyer credits and unemployment credits.
In addition to the loss carryback, a number of tax changes are scheduled.
This is the last year for people to take advantage of the current bonus depreciation of 50 percent. In addition, capital gains will change.
“No one really knows what those rates will be,” said Mr. Paris.
The tax is 15 percent now, he said,
The tax rate on dividends, now at 15 percent, is likely to increase and be treated as ordinary income.
“Businesses are really excited about the NOL carryback,” Mr. Paris said. “Real estate and construction folks are the most excited.”