Business Tax Provisions

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Bonus Depreciation

The Act extends the 50 percent bonus depreciation through 2009, retroactive to January 1, 2009. The Act also extends the bonus depreciation through 2010 for property with a recovery period of ten years or more, for transportation equipment and certain aircraft.

Higher Limit on Vehicle Depreciation

The Act extends the increase in the dollar cap on vehicle depreciation by $8,000 for new vehicles placed in service in 2009 if bonus depreciation is claimed on the property. The purpose of the temporary increase is to prevent the benefits of bonus depreciation from being eliminated by the special limits on motor vehicle depreciation. The first-year dollar limitation is adjusted annually for inflation, but we expect that the increased amount for 2009 will be approximately $10,960, the same as in 2008.

First Year Expensing

The Act extends the section 179 expensing limit of $250,000 and the threshold for reducing the deduction of $800,000 for property placed in service in 2009. These increased limits previously applied only to property placed in service in 2008.

Net Operating Loss Carryback

The Act allows taxpayers to carry back net operating losses arising in 2008 for three, four, or five taxable years, rather than the current two taxable years. The provision applies only to an eligible small business, which is defined as a business with average annual gross receipts of less than $15,000,000 (taking into account the gross receipts of certain related taxpayers). The Conference Agreement dropped the provision of the House bill that provided that the amount of the net operating loss would be reduced by ten percent if the additional carryback period is used.

Refundable Credits

The Act extends through the end of 2009 a provision that permitted corporations to monetize some of their older unused alternative minimum tax and research and development tax credits. Under this provision, a corporation that is eligible for bonus depreciation may elect instead to claim additional refundable alternative minimum tax or research and development tax credits. The credits are increased by 20 percent of the difference between depreciation claimed on eligible property with and without bonus depreciation. The amount is limited to the lesser of six percent of the accumulated credits or $30 million.

Work Opportunity Credit

The Act adds unemployed veterans and disconnected youth to the list of targeted groups eligible for the credit. This provision applies to individuals who are hired and begin work in 2009 or 2010.

Cancellation of Debt Income

Under the Act, a taxpayer that reacquires its business debt would recognize any cancellation of debt income ratably over five years beginning in 2014 for debt reacquired after December 31, 2008, and before January 1, 2011. The provision broadly applies to debt acquired directly by the debtor or through a related person, and to most types of acquisitions, including through cash settlement, modification, issuance of a new debt instrument, forgiveness, or issuance of equity instruments.

Scope of Section 382

The Internal Revenue Service issued Notice 2008-83 relieving banks and other financial institutions from the application of certain aspects of section 382 regarding the use of built-in losses following an ownership change. The Act generally terminates the  application of this Notice for transactions after January 16, 2009 (subject to certain transitional rules), using strongly-worded language indicating that the Treasury Department and the Service had exceeded their authority in issuing the Notice.

S Corporation Built-in Gains Tax Relief

Under the Act, the recognition period for the section 1374 built-in gains tax imposed on S corporations would be temporarily reduced from ten years to seven years for taxable years beginning in 2009 or 2010. This provision generally provides a benefit for C corporations that converted to S corporation status in taxable years beginning in 2000 through 2003.