I’ve been tossing around blog post after blog post in my head, trying to figure out what to write exactly about the tax provisions in the most recent bailout package. And I think I’ve finally figured out what’s been bothering me: the darn thing just doesn’t make sense.
I knew that the bill was going to be a hot mess. The bill which managed to pass the Senate wasn’t just about the bailout - it was everything but the kitchen sink. But the final bill is even worse.
So here’s just a taste of what the bill, known as H.R. 1424, the Emergency Economic Stabilization Act, says:
FDIC caps raised. As previously reported, the FDIC insurance limit was raised from $100,000 to $250,000. This cap is temporary and was supported by both Senators McCain and Obama. And yes, it’s supposed to make us feel better about our banks (is it working?).
AMT “relief”. Congress finally did something to fix the AMT before the end of the year… Really. But just like in prior years, this is a temporary patch. We’ll be yelling about it again next year.
Gain or Loss From Sale or Exchange of Fannie Mac and Freddie Mac Stock. The bill treats losses on sales of Fannie Mae and Freddie Mac preferred stock by financial institutions or banks as ordinary losses.
Golden Parachute Rules Modified. The bill applies limits on executive compensation and golden parachutes for executives of employers who participate in the bailout.
Extension of Mortgage Forgiveness Tax Treatment. The bill extends current law tax forgiveness on the cancellation of mortgage debt. A forgiveness of debt had been traditionally included in income, but was exempted in 2007 - the bill extends that deadline through 2012.
Taxes Paid and Other Deductions Extended. For taxpayers who itemize, there are extensions for deductions for state and local sales tax; qualified higher education expenses; school supplies expenses for educators; and the recent additional standard deduction for property taxes.
Donations To Charity From Retirement Accounts. The bill also extends the ability of people over age 70½ to make a donation to charity from an IRA of up to $100,000 and exclude that amount from income.
Child Tax Credit Modified. The bill enhances the child tax credit by lowering the “floor” for the refundability of the credit.
Extensions and Modifications of Production Tax and Energy Credits. The bill extends the date for the production credit and expands the types of facilities qualifying for the credit. The bill extends the 30% investment tax credit for solar energy property, qualified fuel cell property and microturbines.
Extension of Energy Credits for Homeowners. The bill extends the credit for residential solar property and removes the credit cap for solar electric investments. The bill adds residential small wind investment and geothermal heat pumps, as qualifying property.
New Clean Renewable Energy Bonds (“CREBs”). The bill authorizes $800 million of new clean renewable energy bonds to finance facilities that generate electricity from wind, closed-loop biomass, open-loop biomass, geothermal, small irrigation, qualified hydropower, landfill gas, marine renewable and trash combustion facilities.
Steel Industry Fuel. The bill adds a credit for coal used in the manufacture of coke, a feedstock used in steel production (taxgirl trivia: I’m a coke expert! As a kid, we named Coke, after this very product. Really.)
Plug-in Electric Drive Vehicle Credit. The bill establishes a new credit for plug-in electric drive vehicles. The credit for passenger vehicles and light trucks ranges from $2500 to $7500. The credit will operate like the existing credit for hybrid vehichles.
Bicycle Commuters. The bill allows employers to provide employees who commute to work by bicycle limited fringe benefits to offset costs like storing the bike. This puts bike commuters in the same category as drivers (imagine that!).
Extension of Credits for Energy-Efficiency Improvements For Homeowners. The bill extends the tax credit for energy-efficient existing homes and includes energy-efficient biomass fuel stoves as a new class of energy-efficient property. The credit that contractors receive for the construction of energy-efficient new homes is also extended.
Investments in Recycling. The bill allows taxpayers to claim accelerated depreciation for purchase of equipment used to collect, distribute or recycle.
Basis Reporting by Brokers on Sales of Stock. Brokers are going to be required to report basis information to the IRS for transactions involving publicly traded securities, such as stock, debt, commodities and derivatives. As a tax professional, I can’t tell you what a great thing this is - assuming that they get it right. The lack of information provided to investors is appalling.
FUTA Surtax. The Federal Unemployment Tax Act (”FUTA”) imposes a 6.2% gross tax rate on the first $7,000 paid each year by employers. The “temporary” surtax of .2% imposed by Congress in 1976 has been extended for another year. Interesting take on the word “temporary”, no?
Charitable Giving. The bill offers tax incentives for charitable giving to help victims of summer storms, tornadoes, and floods in the Midwest. The bill also extends special deductions for businesses for donations of food, as well as books and computers to schools.
And now some of my favorites:
Extending credits for mine rescue training team expenses and an election to expense advanced mine safety equipment;
Increasing deductions for film and TV production costs if the costs are incurred in economically depressed areas;
Accelerated depreciation for casinos business property on Indian reservations;
An economic development credit for American Samoa;
Tax rebates for rum imported from Puerto Rica and the American Virgin Islands;
Allowing commercial fishermen and those affected by the Exxon Valdez oil spill in Alaska to average out damage awards over three years;
Extending programs that fund rural schools and communities which depend on income from logging on federal land;
Imposition of a break on excise tax for the manufacture of wooden arrows used in toys for children;
Extending a write off for NASCAR and other motor tracks to offset racetrack costs; and
Tax breaks to support the “Wool Research Fund”
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So we covered everything, right? Nobody feels left out?
And yes, I know this post is tinged with my political views - but it’s not partisan. It’s about simplicity. At my office, if a client wants three things, we don’t throw them all together, we tackle them one at a time. We don’t do a combination will + noncompete + incorporation in one document because those are different issues that require different levels of discussion and attention. And that works for us.
Why doesn’t the “one thing at a time” bit work for Congress?
[author's note: My apologies if you read the original, sadly unformatted version of this in the feed. I hit "send" instead of "save" cause yes, it's been that kind of day.]
