New Tax Legislation Provides Business Incentives
By Shane Antholz
Specifically, in the category of “business incentives”, the 2009 Act provides the following:
- 1. Bonus Depreciation. The “bonus depreciation” provisions set forth in the 2008 Act and IRC § 168(k) were extended for an additional year. This provides taxpayers with the ability to immediately write off 50% of the adjusted basis of qualified new property placed into service in 2009 (or 2009-2010 for certain longer-lived and transportation property), with the remaining 50% depreciated under the “standard” depreciation rules available for the asset. So, for example, for an asset with a four-year useful life, the taxpayer is able to recover 62.5% of the asset’s cost in the first year (50% + ¼ x 50%).
- 2. Near Doubling of Small Business Expensing Limitation. As with the bonus depreciation provisions, this is an extension of an incentive provided under the 2008 Act. Prior to 2008, under IRC § 179, a taxpayer was permitted to immediately expense up to $128,000 of the cost of new or used depreciable tangible property purchased (as opposed to depreciating the entire cost of the property over the course of its useful life) for use in the business. The 2008 Act nearly doubled that amount to $250,000, and the 2009 Act extends that incentive to property purchased in 2009. IRC § 179 has often been referred to as a “gift” from the IRS to business owners. By increasing the amount that may be expensed under this Section, this has become the gift for business owners that keeps on giving.
- 3. Increased NOL Carryback Period. The NOL carryback provisions of the Tax Code allow businesses to use current losses to offset taxes paid in prior years. Prior to the 2009 Act, the permissible “lookback” period was limited to the prior two tax years; meaning that a loss generated by the business for the current tax year could only be used to offset past tax payments for the prior two taxable years. Under the 2009 Act, an “eligible small business” (which is defined as a business with gross receipts not exceeding $15,000,000) is able to offset past tax payments for up to the prior five taxable years. This in turn provides the business with a greater opportunity to generate a current tax credit to apply against future taxable income.
- 4. Deferral of Cancellation of Indebtedness Income. Generally, income realized by a debtor from a discharge of indebtedness (subject to certain exceptions, like Chapter 11 bankruptcy) is included in that debtor’s gross income for the year of discharge. The 2009 Act provides an exception from this general rule where such income arises from a reacquisition of an applicable debt instrument in tax years 2009-2010, by allowing businesses to defer any tax on this income until 2014, where it is then taxed ratably over a five-year period (2014-2018).
- 5. Alternative Motor Vehicle Credit. This new incentive applies to vehicles placed into service in 2009 and 2010, and provides a credit of up to $4,000 for 10% of the cost of converting any motor vehicle into a qualified plug-in electric drive motor vehicle.
- 6. Qualifying Advanced Energy Project Credit. This new credit (30% for the cost of project investment) is effective for periods after February 17, 2009, and is available only for projects certified by the Secretary of Treasury (in consultation with the Secretary of Energy). The credit applies to projects that equip, expand or establish manufacturing facilities that produce certain renewable and/or alternative energy property which is designed to reduce greenhouse gas emissions, such as fuel cells, renewable fuels, electric grids for renewable energy or solar, wind or geothermal energy.