On February 13, 2009, Congress passed the American Recovery and Reinvestment Act of 2009 (“Act”). President Obama signed the Act into law on February 17, 2009. The Act provides a series of direct spending and tax incentives for individuals and businesses to jump start the U.S. economy.

The purpose of this information is to provide an overview of this new law. However, as with most tax revisions, the Act is complicated and the devil is in the details. This information is only an executive summary of the Act and not a detailed analysis. If you have any questions regarding how this new legislation applies to your particular situation, please do not hesitate to contact your tax professional.

Business Incentives

Work Opportunity Tax Credit

For 2009 and 2010, the Act includes an expanded category of targeted groups under the Work Opportunity Tax Credit. These new categories are unemployed veterans and disconnected youth. 

Increased Expensing Under Code Section 179. The Act extends the current 2008 expensing rules under Code Section 179 for 2009. Therefore, for 2009, businesses will be able to expense up to $250,000 of capital acquisitions. The threshold for reducing the deduction remains at $800,000 which was also the 2008 level. 

Bonus Depreciation

The Act extends the 50% first-year bonus depreciation allowed under the 2008 Economic Stimulus Act through Dec. 31, 2009. Therefore, taxpayers will temporarily be able to deduct immediately 50% of the cost of applicable assets acquired with depreciable lives of 20 years or less. 

NOL Carryback

The Act provides a five-year carryback of 2008 net operating losses (“NOL’s”), but only for qualified small businesses with average gross receipts of $15 million or less. The normal NOL period of 2 years returns for NOL’s incurred in 2009. 

Cancellation of Indebtedness

The Act encourages business restructurings by allowing delayed recognition of income from debt cancellation.