Regulatory and Tax Bulletins

Economic Stimulus Package Act Delivers Tax Rebates and Relief

REBATES FOR INDIVIDUALS
Rebates, or “advance credit payments,” comprise the most well-known element of the more than $150 billion stimulus plan. These credits can reach up to $600 for individuals and $1,200 for married couples, and will be distributed to an estimated 130 million taxpayers. Most taxpayers with an adjusted gross income (AGI) below $75,000 ($150,000 for married couples filing joinntly) can expect the greater amount of either $600 dollars, or $300 if the individual has either:

a) $3,000 or more of any combination of earned income, Social Security benefits and some veterans’ benefits, or
b) Net income tax liability more than $1 and gross income greater than $8,950 for singles, and $17,900 for married couples.

Simply, for most lower to middle-class taxpayers, the rebate returns the 2007 income tax on the first $6,000 ($12,000 for married couples filing jointly) of taxed income in the 10 percent tax bracket. For higher income taxpayers (above $75,000 AGI for individuals, $150,000 AGI for married couples), the rebate is phased out at a rate of five percent of income exceeding the AGI limit. Therefore, the rebate is effectively phased out at an AGI of $87,000 for individuals and $174,000 for married couples. In addition, there is a rebate of $300 per qualifying child above the first rebate amount, with no limit to the number of child credits (but the AGI limits do apply).

There are limitations, including a requirement that each taxpayer have a valid Social Security number (including qualifying children), and the rebate is subject to offset for any outstanding federal debts.

TAX RELIEF FOR BUSINESSES
For businesses, the Act enhanced expensing allowances and bonus depreciation, totaling an estimated $44.8 billion of relief. The stimulus package significantly increases Code Sec. 179 deductible expensing for 2008, up to $250,000, and increases the reduction threshold to $800,000, applicable to property purchased and placed into service in the 2008 tax year.

If a business does not show a taxable income in the 2008 tax year, the deduction can be carried forward to a non-loss year. There are no changes to qualifying types of property as detailed in Code Sec. 179.
The provision for temporary bonus depreciation allows qualifying taxpayers a bonus 50 percent first-year depreciation for qualified property. Eligibility requirements include:

a) property to comply with the modified accelerated cost recovery system (MACRS) with a depreciation period of 20 years or less,
b) water utility property,
c) off-the-shelf computer software, or
d) qualified lease hold properties

Generally, taxpayers must begin to use the property in the 2008 tax year and enter into purchase contracts during the 2008 calendar year. Additionally, changes to Code Sec. 280F raise the limit on “luxury” vehicle depreciations.

RELIEF FOR THE MORTGAGE MARKET
Additionally, the Act increased loan limits for Fannie Mae, Freddie Mac, and the Federal Housing Administration for one year. The limits for Fannie Mae and Freddie Mac were increased to $729,750 each, and the Federal Housing Administration received authorization to guarantee loans of the same amount. These changes are expected to increase liquidity in the mortgage markets and provide some relief for Americans affected by mortgage troubles.

Currently, taxpayers can use the IRS refund calculator located at http://www.irs.gov/app/espc/ , and the payment schedule (listed by final 2 numbers in Social Security Number) can be found at http://www.irs.gov/irs/article/0..id=180250.00.html .

The Act provides a considerable economic allowance for both individuals and businesses. To maximize tax savings, expert tax planning is essential. Contact your local CB&H tax professional today to ensure that you and your business receive the maximum possible benefit of these provisions.

FOR MORE INFORMATION, PLEASE CONTACT:

About Cherry, Bekaert & Holland, L.L.P.