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Extension of 50% Bonus Depreciation. The Act extends first-year bonus depreciation to property placed in service in 2009 (or, in certain limited cases, 2010). An owner of qualifying property placed in service in 2009 is entitled to deduct 50% of the adjusted basis of the property in 2009. The remaining 50% of the adjusted basis of the property is depreciated over the regular tax depreciation schedule.

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Extension of Election to Accelerate the AMT and Research Credits in lieu of Bonus Depreciation. In 2008, Congress allowed corporations to elect to forgo bonus depreciation in exchange for increases in the otherwise applicable business tax credit limit and the AMT credit limit. The Act extends the availability of this election for one year through 2009.

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Temporary Increase in Limitation on Expensing of Certain Depreciable Business Assets. Generally, a taxpayer may elect to expense, rather than depreciate, the cost of certain property used in a trade or business. In 2008, the amount subject to expensing was increased temporarily from $125,000 to $250,000, and the point at which the benefit begins to phase out was increased temporarily from $500,000 to $800,000. The Act extends these increases through 2009.

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5-year Carryback of Operating Losses. The Act increases the general net operating loss (NOL) carryback period for certain small businesses (generally, businesses with gross receipts of $15 million or less) from 2 years to up to 5 years for NOLs arising in taxable years beginning or ending in 2008. A taxpayer may use pre-Act law (2 years) or may elect to use 3, 4 or 5 years. For NOLs for taxable years ending before the date of enactment, the Act provides that a taxpayer's election to revoke a prior waiver of the carryback period, election to extend the carryback period pursuant to this provision, or tentative refund claim will be considered timely if filed within 60 days after the date of enactment. This provision was scaled back substantially from the original House proposal, which would have applied to all businesses with NOLs.

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Special Rules Applicable to Qualified Small Business Stock for 2009 and 2010. The Act increases from 50% to 75% the exclusion of gain from the sale of certain small business stock held for more than 5 years. This change applies to qualifying stock acquired after the date of enactment through 2010.

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Reduction of S Corporation Built-In Gains Holding Period. Under current law, any C corporation that converts to an S corporation must pay corporate tax on built in gain attributable to an asset held on the date of conversion if the asset is sold within 10 years of the conversion. The Act shortens the holding period from 10 years to 7 years for asset sales occurring in 2009 and 2010.

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Delayed Application of Withholding Requirement on Government Contractors. The Acts delays for one year the 3% withholding required on certain payments made by federal, state and local governments to persons providing property or services. The withholding provision is now scheduled to apply with respect to payments made after 2011.

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Deferral and Ratable Inclusion of Income Arising from Indebtedness Cancelled by the Reacquisition of a Debt Instrument. Generally, gross income includes income realized by a debtor from the cancellation of debt (COD). The Act allows any person that issues a debt instrument in connection with a trade or business or any C corporation to elect to defer COD income that results from a reacquisition (including acquisitions for cash; exchange of the debt instrument for another debt instrument, corporate stock or a partnership interest; contribution of a debt instrument to capital; and complete forgiveness of indebtedness) by the taxpayer or a related party in 2009 and 2010 of an "applicable debt instrument." A taxpayer that elects to defer COD income pursuant to this provision is required to include the COD income ratably over the 5-year period beginning in the fifth taxable year (fourth taxable year for 2010 reacquisitions) following the taxable year in which the reacquisition occurs. The Act also defers the issuer's deduction for any original issue discount attributable to replacement debt in a debt-for-debt exchange to which the COD income deferral applies.

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Modification of Rules for Original Issue Discount on Certain High Yield Obligations. The Act temporarily suspends the disallowance of the deduction for original issue discount on certain high yield discount obligations issued from September 1, 2008 to December 31, 2009. The Act also authorizes the Treasury to designate an interest rate higher than the applicable federal rate for purposes of determining whether a debt instrument is a high yield discount obligation for purposes of these rules.

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De Minimis Safe Harbor for Tax-Exempt Interest Expense of Financial Institutions. The Act allows financial institutions to deduct interest expense allocable to tax-exempt bonds issued during 2009 or 2010. The value of tax-exempt bonds to which deductible carrying interest is allowed, however, may not exceed 2% of the average adjusted bases of all of the financial institution's assets. In addition, with respect to certain financial institutions, the Act subjects interest deductible under this safe harbor to the 20% reduction that previously applied to interest on debt to carry certain tax-exempt obligations acquired in the 1980s.

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Increased Limitation for Certain Bond Issuers. Generally, interest incurred by a financial institution to purchase or carry tax-exempt bonds is not subject to the otherwise applicable deduction disallowance if the tax-exempt bonds are issued by a qualified small issuer. For 2009 and 2010, the Act expands the definition of a qualified small issuer by increasing the annual limit of tax-exempt obligations (other than certain private activity bonds) a qualified small issuer can issue from $10 million to $30 million.

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Election for Regulated Investment Companies to Pass Through Tax Credits Generated by Tax Credit Bonds. The Act allows a regulated investment company (RIC) to elect to pass through to its shareholders the tax credit generated by certain tax credit bonds held by RIC.

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Increased Exclusion Amount for Commuter Transit Benefits and Transit Passes. The Act temporarily increases, through 2010, the income exclusion for qualified commuter transit benefits or transit passes to the inflation-adjusted amount allowed for qualified parking. For 2009, this amount is $230.

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Incentives to Hire Unemployed Veterans and Disconnected Youth. For 2009 and 2010, the Act treats unemployed veterans and disconnected youth as members of a qualified target group for purposes of the Work Opportunity Tax Credit.

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Reversal of Notice 2008-83 Regarding Limitation of Availability of Losses Following an Ownership Change. IRS Notice 2008-83 provided banks with an exemption from the imposition of certain limitations related to the use of built-in losses arising from loan losses or bad debt deductions. The Act reverses Notice 2008-83 for any ownership change occurring after January 16, 2009, except for ownership changes pursuant to a binding contract entered into on or before January 16, 2009. Notice 2008-83 is deemed to have the force and effect of law for an ownership change occurring on or before January 16, 2009.

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Exception to Rules Limiting Availability of Losses Following an Ownership Change. The Act suspends the applicability of certain limitations on the use of net operating losses following an ownership change with respect to certain transactions, including an ownership change required under a loan agreement or commitment for a line of credit entered into with the Treasury pursuant to the Emergency Economic Stabilization Act of 2008.

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Increase in New Markets Tax Credit. The Act increases the maximum amount of qualified equity investments for purposes of the new markets tax credit from $3.5 billion to $5 billion for 2008 and 2009.

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Extension of the Production Tax Credit (PTC) Sunset Date. The Act extends the placed-in-service sunset date for wind projects through 2012, and the placed-in-service sunset dates for closed-loop biomass, open-loop biomass, geothermal, landfill gas, trash, qualified hydropower, and marine and hydrokinetic renewable energy facilities through 2013.

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Election to Claim the Investment Tax Credit (ITC) in lieu of the PTC. The Act permits a taxpayer to elect to claim the ITC in lieu of the PTC for wind, closed-loop biomass, open-loop biomass, geothermal, landfill gas, trash, qualified hydropower, and marine and hydrokinetic renewable energy facilities placed in service during the period from 2009 through 2013 (through 2012 for wind). The amount of the ITC generally is 30% of qualifying costs.

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Grants in lieu of the ITC.— The Act permits a taxpayer to receive a grant from the Treasury in lieu of claiming tax credits with respect to certain property placed in service in 2009 or 2010 that otherwise would qualify for the ITC or the PTC. Property placed in service after 2010 and on or before the applicable credit termination date could qualify for the grants, but only if construction begins in 2009 or 2010.

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Modifications to the ITC. The Act eliminates the reduction of the ITC for property (1) financed by subsidized energy financing or tax-exempt private activity bonds and (2) placed in service after 2008. For self-constructed property, the elimination applies only to the extent of the basis attributable to periods after 2008.

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Advanced Energy Property Credit. The Act creates a new 30% credit for investment in certain property used in a "qualifying advanced energy manufacturing project." This includes any project that re-equips, expands or establishes a manufacturing facility for the production of property designed to produce energy from the sun, wind, geothermal deposits, or other renewable resources; fuel cells, microturbines, or certain energy storage systems; electric grids to support the transmission of intermittent sources of renewable energy; property for carbon capture or sequestration; property designed to refine or blend fuels or to produce energy conservation technologies; certain plug-in electric motor vehicles and components that are designed specifically for use with such vehicles; or other advanced energy property designed to reduce greenhouse gases as may be determined by the Treasury.

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Making Work Pay Credit. For 2009 and 2010, the Act creates a new refundable credit equal to 6.2% of earned income up to $400 ($800 for a joint return). The credit is reduced by 2% of the amount by which modified adjusted gross income exceeds $75,000 ($150,000 for a joint return). Income tax withholding tables will be amended to take into account the reduced tax liability resulting from this credit.

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Extension of First-Time Home Buyer Credit. In 2008, Congress enacted a new tax credit of up to $7,500 for first-time home buyers. The credit generally was subject to recapture over a 15-year period. The Act increases the maximum credit to $8,000 and extends the availability of the credit by 2 months, to cover qualified purchases made on or before November 30, 2009. In addition, recapture does not apply to qualified purchases made between January 1, 2009 and November 30, 2009. Accelerated recapture rules continue to apply, however, if the home is disposed of or ceases to be the taxpayer's primary residence within 36 months of purchase. Unlike the Senate version, the Act did not expand the scope of the credit to all home buyers, increase the amount of the credit to $15,000, or eliminate the phase out of the credit based on modified adjusted gross income.

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New Deduction for State and Local Sales Tax on the Purchase of a New Car or Light Truck. The Act allows a deduction for, and increases the standard deduction by, the amount of state or local sales taxes paid with respect to the purchase of certain cars or light trucks acquired after the date of enactment and before 2010. The amount of deductible sales tax is limited to sales tax attributable to $49,500 of the purchase price. The amount of the deduction phases out for purchasers with modified adjusted gross income in excess of $125,000 ($250,000 for a joint return). The deduction is not allowed for taxpayers who otherwise elect to deduct state and local sales taxes. This new deduction also is allowed for AMT purposes.

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Reduced Quarterly Estimated Tax Payments. The Act reduces the amount of 2009 estimated tax payments for an individual (1) with 2008 adjusted gross income of less than $500,000 ($250,000 if married filing separately) and (2) who certifies that at least 50% of the gross income shown on his or her 2008 return was income from a small trade or business (generally a business with fewer than 500 employees). Under pre-Act law, the required amount of 2009 estimated tax payments was the lesser of 90% of 2009 tax liability or 100% (110% for individuals exceeding an adjusted gross income threshold) of 2008 tax liability. The Act changes the formula for qualifying individuals to the lesser of 90% of the 2009 tax liability or 90% of 2008 tax liability.

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Exclusion of Unemployment Compensation from Gross Income. The Acts excludes from gross income up to $2,400 of unemployment compensation received in 2009.

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One-Year Extension of the AMT Patch. For 2009, the Act increases the amount of income otherwise exempt from the AMT to $46,700 for unmarried individuals who were not surviving spouses, $70,950 for married couples filing jointly and surviving spouses, and $33,125 for married individuals filing separately.

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Extension of AMT Relief for Nonrefundable Personal Credits. The allowance of certain nonrefundable tax credits (e.g., dependent care credit, credit for the elderly and disabled, adoption credit, credit for savers, credit for certain nonbusiness energy property, credit for residential energy efficient property) to offset a taxpayer's AMT liability, as well as a taxpayer's regular tax liability, is extended through 2009.

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No AMT on Tax-Exempt Private Activity Bond Interest. The Act provides that tax-exempt interest on private activity bonds issued in 2009 and 2010 is not subject to AMT and is not included in the calculation of a corporation's adjusted current earnings for AMT purposes.

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Build America Bonds. The Act permits an issuer to elect to treat an otherwise tax-exempt bond that is not a private activity bond as a "Build America" bond. Instead of earning tax-exempt interest, a holder of a Build America bond would accrue a tax credit equal to 35% of the interest payable on the bond during the calendar year. The interest would be included in gross income. Ownership of the bond and the entitlement to the credit could be separated under rules similar to those provided for qualified tax credit bonds. For Build America bonds issued after the date of enactment and before 2011, all of the proceeds of which are to be used for capital expenditures, the issuer may irrevocably elect to receive a refundable credit. If the issuer so elects, in lieu of the holder receiving a tax credit, the Treasury would pay to the issuer an amount equal to 35% of the interest payable on the interest payment dates of the bonds during the calendar year.

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Expansion of Industrial Development Bonds. Generally, for industrial development bonds to qualify as tax-exempt, the proceeds of the bonds may be used only with respect to certain manufacturing facilities that produce tangible personal property. The Act allows industrial development bonds issued after the date of enactment and through 2010 to qualify as tax-exempt if the proceeds of bonds are used to finance manufacturing facilities that create or produce certain intangible property and clarifies which components of a facility may be financed with the bonds.

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Creation of Recovery Zone Bonds. The Act authorizes $10 billion in recovery zone economic development bonds, a new category of tax credit bonds, and $15 billion in recovery zone facility bonds, a new category of private activity bonds. The bonds must be issued during 2009 and 2010 and the caps will be allocated based in part on states' employment declines.

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Creation of Tribal Economic Development Bonds. The Act authorizes tribal governments to issue tribal economic development bonds, which are tax-exempt bonds that are not required to satisfy the essential governmental function requirement. The total amount of bonds cannot exceed $2 billion.

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Creation of Qualified School Construction Bonds Issued by State, Local and Tribal Governments. The Act creates a new category of tax credit bonds the proceeds of which must be used for the construction, rehabilitation, or repair of a public school facility or for the acquisition of land on which such a facility is to be constructed. For bonds issued by state and local governments, the Act authorizes $11 billion of qualified school construction bonds annually for each of 2009 and 2010. For bonds issued by tribal governments, the Act authorizes $200 million of qualified school construction bonds annually for each of 2009 and 2010.