The Official Online Weekly Newspaper of NAHB
The small business lending legislation (H.R. 5297) signed into law last week by President Barack Obama includes $12 billion in tax breaks designed to help the small business community.
Of note to home builders, the legislation includes several tax incentives that will help their bottom line:
- Increased Section 179 Expensing. For 2010 and 2011, the bill increases the amount of investments that businesses are eligible to write off to $500,000 and raises the level of investments at which the write-off phases out to $2 million. Prior to passage of the bill, the expensing limit was $250,000 this year and only $25,000 in 2011.
This means that a business that buys up to $2 million in new equipment this year and next can immediately write off the first $500,000 of its purchases. Businesses that invest more than $2 million have their $500,000 allowance limit reduced by one dollar for each dollar exceeding the $2 million limit.
- A New Deduction of Health Insurance Costs for Self-Employed. Making an exception to current law, this provision allows small business owners to deduct the cost of health insurance incurred in 2010 for themselves and their family members when calculating their self-employment taxes.
- Tax Relief and Simplification for Cell Phone Deductions. The legislation changes rules so that beginning this year, the use of cell phones can be deducted or depreciated like other business property, without onerous recordkeeping requirements.
- A Five-Year Carryback of General Business Credits. The new law allows certain small businesses to carry back up to five years their general business credits — including the Section 42 Low-Income Housing Tax Credit and the Section 45L New Energy Efficient Home Credit — to offset taxes paid in prior years, providing them an immediate refund this year by filing an amended tax return.
The provision also allows these credits to offset Alternative Minimum Tax liability in prior tax years. This applies to general business credits for those sole proprietorships, partnerships, S Corporations, LLCs and C corporations with $50 million or less in average annual gross receipts.
- Zero Taxes on Capital Gains From Key Small Business Investments. Under the American Recovery and Reinvestment Act of 2009, 75% of capital gains on key small business investments this year were excluded from taxes. The legislation temporarily puts in place a provision for the rest of 2010 to eliminate all capital gains taxes on these investments if they are held for five years.
- Extension of 50% Bonus Depreciation. Under the Recovery Act, Congress temporarily allowed businesses to recover the costs of certain capital expenditures made in 2008 and 2009 more quickly than under ordinary depreciation schedules by permitting those businesses to immediately write off 50% of the cost of certain depreciable property (rental residential real estate, in general, is excluded) placed in service in those years. The new law extends the provision for 50% bonus depreciation through 2010.
- An Increase in the Deduction for Start-Up Expenditures. Under current law, taxpayers may deduct up to $5,000 in business start-up expenditures. The amount that a business may deduct is reduced by the amount by which start-up expenditures exceed $50,000. For 2010 only, the new law increases the amount of start-up expenditures that entrepreneurs can deduct from their taxes to $10,000, subject to a $60,000 phase-out threshold.
Many of these provisions apply to investments or costs expended in 2010, and businesses should work with a tax professional to ensure that they gain the appropriate tax benefit for actions that they may have taken earlier this year.
For more information on the tax incentives included in H.R. 5297, e-mail Robert Dietz at NAHB or call him at 800-368-5242, x8285.