Key Tax Breaks Dropped From US Stimulus Bill

by Mike Godfrey, Tax-News.com, Washington

13 February 2009

It has emerged that key tax cuts targeted towards businesses and individuals have been jettisoned from the American Recovery and Reinvestment Act 2009 to keep the total cost of the stimulus bill below USD800bn.

One of the major casualties of the cull, brought about as House and Senate negotiators try to reach a timely agreement on the final version of the bill, was the proposal to extend the carry back period for net operating losses from two to five years. Under a watered down amendment to this provision, only companies with annual revenues of less than USD5m will be able to carry back losses for five years.

President Obama's cherished 'Make Work Pay' tax credit also did not escape the conferees' cuts, and has been slimmed down to USD400 per individual and USD800 per couple, from USD500 and USD1,000 respectively.

Other notable ejections from the legislation include a USD15,000 tax credit to individuals who purchase a home in the next year. Instead, lawmakers have decided to increase an existing USD7,500 home purchase tax credit to USD8,000 and extend its expiration date until the end of 2009.

A provision to allow taxpayers to deduct interest payments on car loans has also been struck from the bill, although negotiators have kept in proposals that will allow car buyers to deduct state sales and excise taxes from their federal tax bill.

However, it seems that proposals to extend bonus depreciation and increased expensing limits for small business into 2009 have survived the negotiators' axe. Another alternative minimum tax 'patch' proposal also remains in place.

The tax cut portion of the bill now stands at about USD275bn, or about one-third of the total stimulus package.

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