Tax Changes for Individuals and Businesses

Signed into law on November 6, 2009.

Homebuyer Credit Extended and Liberalized  FTHTC-first time homebuyer tax credit

The credit has been extended to closings on before April 30,2010. If the buyer has a binding contract on or before April 30,2010, the closing has to be completed on or before June 30,2010. For purchases after November 6, 2009, the FTHTC phases out for individual taxpayers with modified adjusted gross income (AGI) between $125,000 and $145,000 ($225,000 and $245,000 for joint filers) for the year of purchase. The new law makes this credit now available to higher-income taxpayers. The total maximum credit allowed remains the same $8,000 ($4,000 for a married individual filing separately).

The FTHTC is now available for existing homebuyers who are "long-term" residents. For purchases after November 6, 2009 any individual (and, if married, the individual's spouse) who has maintained the same principal residence for any 5-consecutive year period during the 8-year period ending on the date of the purchase of a subsequent principal residence is treated for FTHTC purposes as a first-time homebuyer of that subsequent principal residence. The maximum allowable credit is $6,500 ($3,250 for a married individual filing separately). 

The FTHTC is not available for purchases AFTER November 6, 2009 to a taxpayer:
-Who is eligible to be claimed as a dependent,
-Is not at least the age of 18 years of age on the purchase date (if the spouse is 18, the taxpayer is treated to have met this test),
-Who purchases the property from a family member of the taxpayer`s spouse; or
-Who purchases a residence of more than $800,000.

(Note: the previous denial for purchases from a family was limited to the family member's family and was silent to the spouses's family).

In addition, for tax returns due for tax years ending after November 6, 2009, the FTHTC is not allowed unless the taxpayer attaches to the return a properly executed copy of the settlement  statement to complete the purchase. The return can not be electronically filed.

A taxpayer can elect to claim the credit for a qualifying 2010 purchase on the 2009 income tax return or wait until the 2010 return is filed.

Effective for dispositions or cessations of use as a principal residence after December 31, 2008, the recapture DOES NOT exist if the taxpayer, or taxpayer's spouse, received Government orders for qualified official extended duty service.

NOL Carryback- A net operating loss (NOL) is the excess of business deductions (with some modifications) over gross income in a particular year. The loss can be deducted, through an NOL carryback or carryover, in another year in which the gross income exceeds business deductions. In general, NOLs may be carried back two years and forward 20 years. For NOLs arising in tax years ending after December 31, 2007, small businesses can elect to increase the NOL carryback period from 2 years to 3,4, or  5 years. A small business for this purpose is defined as a corporation or partnership that meets the gross receipts test of $15 million or less (Code Sec. 448(c)) for the tax year in which the loss arose, or a sole proprietorship that would meet the test if the proprietorship were a corporation.

The Act provides an election for most taxpayers (not just small businesses) to increase the carryback period for an applicable NOL to 3, 4, or 5 years from 2 years. The election once made is irrevocable. The election must be made by the due date (including extensions) of the taxpayer's last taxable year beginning in 2009, which can be late as October 15, 2010 for individual taxpayers. Taxpayers are limited to ONE election from these years and cannot make an election for both years. However, a taxpayer who has an eligible small business NOL can make TWO elections providing the first was made timely under the previous law.

The NOL carryback under this election can only offset 50% of the taxpayer's taxable income in the 5th carryback year and 100% of all subsequent carryback years. The 50% limitation does not apply to the applicable 2008 NOL of an eligible small business with respect to which an election is made under the pre-Act law even if the election is made after November 6, 2009.

The AMT-NOL carried back as a result of this election no longer has the 90% limitation in the carryback year.

FUTA tax surcharge- The 0.2% surcharge on FUTA tax rate has been extended through June 30, 2011 leaving the rate at 6.2% instead of 6.0%.

Failure to File Penalty- The Failure to File penalty for partnerships and S corporations is increased from $89 per month to $195 per month. This means that the penalty per partner/shareholder is $195 per month with a maximum time period of 12 months
So the maximum penalty for a two person partnership is now $4,680 for filing these returns late even when no tax is due.

Mandatory Electronic Filing by tax return preparers- Starting with individual income tax returns filed after December 31, 2010
tax return preparers will be required to electronically all individual tax returns prepared. The only exception will be for preparers who reasonably expect to file 10 or fewer individual tax returns during the calendar year.