The economic stimulus legislation to be signed into law by President Obama today includes a blend of provisions offered by the House and Senate to free up credit for small businesses, spur investments in alternative energy, and rejuvenate the housing market.
The Conference Committee compromised between the two chambers’ differing home purchase tax credits, settling on an $8,000 tax credit for first-time home buyers ($4,000 each for married couples who file separate tax returns). In a change from the housing stimulus legislation enacted in July 2008, this credit does not have to be repaid as long as the taxpayer continues to use the home as a principal residence for at least three years after purchase. It is effective for purchases completed between Jan. 1, 2009, and Dec. 1, 2009.
Small business loan provisions
Notably, the final legislation includes more money for Small Business Association lending programs than either the House or Senate envisioned. According to the Conference Committee report, the agreement provides $636 million for SBA loan programs, while the House bill allocated $430 million for small business lending and the Senate proposed $621 million. Of the additional amount, $6 million is directed to the SBA’s microloan program.
Among the administrative provisions related to the SBA that we reported on earlier, the legislation authorizes:
- fee reductions in the 7(a) and 504 loan programs proposed by the Senate;
- guarantees of up to 90 percent on 7(a) loans, as proposed by the House;
- a Secondary Market Guarantee Authority within the SBA to guarantee pools of first lien 504 loans, as proposed by the House;
- refinancing of 504 community development loans with revised job creation goals; and
- simplified maximum leverage limits and aggregate investment limits required of small business investment companies (SBICs).
In addition, the legislation authorizes a new business stabilization program to allow the SBA to guarantee deferred loans of up to $35,000 to viable small businesses that already have a qualifying small business loan and are experiencing immediate financial hardship. To qualify, the loan must be made to a small business that meets the 7(a) eligibility criteria and must be used to make periodic payments on an existing qualifying loan for up to six months. Repayment of loans guaranteed under this program must be deferred for 12 months after disbursement and amortized over no more than five years.
The conference report does not include a House provision that would have allowed refinancing of SBA loans or a Senate provision that would have raised the limits on 7(a) loans.
Small business tax provisions
As expected the legislation extends for two years small businesses’ ability to expense up to $250,000 annually in costs for new plants and equipment under Section 179 of the tax code instead of depreciating it over time.
The Conference Committee accepted a Senate proposal that allows individuals to exclude from income 75 percent of their gains on small business stock held for more than five years (up from 50 percent under current law). It also included, with modifications, a provision allowing businesses to defer paying taxes on “cancellation of debt income” when they repurchase or cancel their debt for less than its adjusted basis in 2009 or 2010.
Conferees were able to cut the cost of the legislation in part by paring back the provision allowing businesses to carry net operating losses back five years. The new law extends the two-year carry-back only for businesses with gross receipts under $15 million.
Some small businesses also will benefit from a provision of the legislation intended to stimulate the moribund automobile industry. The legislation allows taxpayers who don’t take state sales taxes as an itemized deduction to deduct any state or local sales or excise taxes paid in 2009 when purchasing an automobile, light truck, or motorcycle weighing less than 8,500 pounds. The deduction is capped at $49,500 and phases out for taxpayers with modified adjusted gross income between $125,000 and $135,000 ($250,000 and $260,000 for joint returns).
Renewable energy provisions
The stimulus package also includes several provisions that will further President Obama’s goals of investing in clean energy technology and cutting greenhouse gas emissions. Among the legislation’s renewable energy incentives are:
- an extension of the renewable electricity production credit through 2012 for wind facilities and through 2013 for other technologies;
- an option for some taxpayers to elect to take an investment tax credit instead of the renewable electricity production credit;
- elimination of the $4,000 cap on the business energy credit for qualified small wind energy property; and
- a new program that allows businesses and homeowners that install renewable electricity production equipment to apply for a grant of up to 30 percent of the cost instead of claiming a tax credit. This option is intended to help businesses and homeowners who don’t have enough taxable income to make full use of the credits.
To encourage the use of plug-in electric motor vehicles, the legislation creates a new 10 percent tax credit, up to $2,500, for electric drive low-speed vehicles, motorcycles and three-wheeled vehicles purchased in before 2012. It also allows the credit for the cost of converting any motor vehicle into a plug-in electric drive vehicle before 2012.