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Emergency Economic
Stabilization Act of 2008
by
Susan C. Bradford, CPA
On
October 3, 2008, the President signed the Emergency Economic
Stabilization Act of 2008 into law. The new law contains $150
billion in tax incentives that will impact both individuals and
businesses. There are also approximately $44 billion in
offsets--meaning increases to certain groups. Although the new law’s
primary purpose is to solve the credit crunch, it also serves as one
of the largest tax bills in recent years. A majority of the tax
relief is provided in 2008 and 2009 resulting in tax planning
urgency for this year.
Below is a brief summary of some of the points included in the new
law.
Financial Markets Rescue Plan
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To
decrease excessive executive compensation for those companies
being assisted by the government, a two-prong approach will be
used:
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In a direct purchase
situation, compensation will be set by the Treasury Department.
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Deductibility of
compensation will be limited to $500,000 for CEOs, CFOs and
other executives of companies participating in the Troubled
Assets Relief Program auctions if the company has sold more than
$300 million in assets.
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In addition,
stricter standards will be put in place relating to golden
parachutes paid to departing executives involved in the bailout.
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Community banks and other qualifying financial institutions that
hold preferred stock in Fannie Mae and Freddie Mac may treat
their losses relating to that stock as ordinary.
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The
temporary rule that allows homeowners to exclude from income
discharges of up to $2 million of debt secured by a principal
residence is extended through 2012.
AMT
Patch
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The
alternative minimum tax patch setting the 2008 AMT exemption
amount for married couples filing jointly at $69,950 was
included in the law. The patch is only for 2008.
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The
new law will abate AMT liability stemming from the exercise of
incentive stock options before 2008 effective for any unpaid tax
liability on the law’s date of enactment. Those who have paid
their ISO AMT liabilities will be allowed to accelerate the
refund of the minimum tax credit.
Individual Incentives
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The
ability to use state and local sales tax in lieu of state and
local income taxes is extended through 2009.
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The
above-the-line higher education tuition deduction is extended
through 2009.
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The
additional standard deduction for real property taxes for
non-itemizers is extended through 2009.
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The
teachers’ classroom deduction of $250 is extended through 2009.
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Taxpayers may continue to make tax-free IRA distributions for
charitable purposes through 2009. The maximum annual
contribution is limited to $100,000.
Business Tax Incentives
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The
research tax credit is extended through 2009.
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Qualifying restaurant improvements and leasehold improvements
will be eligible for 15-year cost recovery. A 15-year recovery
period will also be allowed for certain improvements to retail
space.
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The
New Markets Tax Credit is extended through 2009. This credit
encourages taxpayers to invest in or make loans to small
businesses in economically distressed areas.
Energy
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Deductions for energy efficient commercial buildings are
extended through 2013.
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The
residential energy efficient property credit is extended through
2016.
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Several extended incentives to encourage the production of
renewable energy are included in the new law.
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Employees who commute by bicycle can exclude certain employer
provided transportation fringe benefits from income.
Offsets
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Brokers will be required to report the adjusted basis of
publicly-traded securities when reporting sales transactions and
indicate whether the gain is short-term or long-term. Reporting
will take effect for stocks acquired in 2011, mutual funds
acquired in 2012 and other securities acquired in 2013.
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Nonqualified deferred compensation plans maintained by foreign
corporations will generally become taxable.
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Section 199 domestic production activities deduction is capped
at six percent for oil and gas production.
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The
0.2 percent surtax on FUTA (unemployment) taxes is extended
through 2009.
The
Somerset Tax Team will continue analyzing the
Emergency Economic Stabilization Act of 2008 and keep you
informed with matters that may impact you. Please don't hesitate to
contact us if you would like to discuss this topic at any time.
Tax
Times is provided by Somerset CPAs for our clients and other
interested persons upon request. Since technical information is
presented in generalized fashion, no final conclusion on these
topics should be made without further review. For additional
information on the issues discussed, please contact your Somerset
advisor or a member of our Tax Team. This document is not intended
or written to be used, and cannot be used, for the purpose of
avoiding tax penalties that may be imposed on the taxpayer.
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