The American Recovery and Reinvestment Act of 2009
 
Written by: Steven D. Beaucaire, MST
Director - Tax | Bedford Cost Segregation, LLC

Correction: The increased NOL carryback provision is only available for a NOL generated in 2008 (years beginning or ending in 2008). The newsletter below has been updated to include this correction.

On Tuesday, February 17th, President Obama signed the American Recovery and Reinvestment Act of 2009 (ARRA). This $787 billion bill allocates approximately 65% to spending and investments and 35% to tax cuts.

In this issue of The Bottom Line, Bedford summarizes the provisions contained within the new bill that are important to cost segregation.


Extension of 50% Bonus Depreciation
 
Bonus Depreciation which was brought back for 2008 only, under the Economic Stimulus Act of 2008, has been retroactively extended from 1/1/09 through 12/31/09. This provision allows taxpayers to deduct 50% of the costs of qualifying property in the first year.

To qualify for Bonus Depreciation, the original use of the asset must begin with the taxpayer after 12/31/07, the asset must have a recovery period of less than 20 years, it must be acquired after 12/31/07 as long as no written binding contract was in effect before 1/1/08, and it must be placed in service before 1/1/10 (1/1/11 for Long Production Period Property).

A cost segregation study is the best way to maximize use of this temporary incentive when it comes to real estate assets.


Extension of Increased §179 Deduction
 
The temporary expansion of the §179 deduction that was made available for small businesses in 2008 has been retroactively extended for one year, from January 1, 2009 through the end of the year. This expensing provision increases the available deduction amount from $125,000 to $250,000 for §1245 acquisitions with a dollar for dollar phase-out starting at $800,000.

It is important to note that the allocations to §1245 property from a cost segregation could push a taxpayer into the $800,000 phase-out so please be sure to consult with your tax advisor on this issue.


Increase Net Operating Loss (NOL) Carryback
 
Under the new bill, a NOL generated in 2008 (years beginning or ending in 2008) can be carried back to the previous five years. This expands on the existing law which limits the carryback to the previous two years. This temporary increase is only available for losses in 2008, not 2009 as proposed and is limited to small businesses with gross receipts of $15 million or less per year. Gross receipts are defined as the average annual gross receipts over the last three years.

A NOL can be carried back to generate a refund of income taxes paid in prior years. The five-year carryback period provides a real opportunity for the recovery of tax payments already made, which could be used to help struggling businesses during these tough economic times.

A cost segregation study may be an excellent way to generate additional depreciation deductions resulting in significant losses to be used as part of an NOL carryback strategy. What could be more welcome than a refund check from the IRS?

We invite you to contact us today to learn more about using cost segregation during these difficult economic times.