President Obama's Economic Stimulus Package: Strategies from PKM & ProfitCrew

President Barack Obama is aggressively pushing an estimated $825 billion economic package to unfreeze credit markets and stimulate the American economy. Lawmakers anticipate having an approved, finalized spending package before the congressional recess in mid-February. There will obviously be numerous revisions to the stimulus package over the coming weeks as House and Senate leaders negotiate a compromise. With that said, this article seeks to outline the major provisions expected to be showcased in the final Bill sent to President Obama.

Key provisions in the economic stimulus package include the following:

• Extension of the $250,000 "Section 179" small business expensing limitation for capital investments and new equipment purchases through 2009.
• To encourage acceleration of capital spending on new plants and equipment, Obama is proposing a one-year extension of the 50 percent bonus depreciation provision; the "bonus" depreciation extension will allow companies to deduct 50 percent of the cost of qualifying property in addition to regular depreciation.
• Extending the net-operating loss carry back from what is currently two years to five years for losses incurred in 2008 and 2009.

With the proposed extension of the NOL carry back, companies will be able to recover taxes paid in profitable years, such as 2003 and 2004, allowing them to receive significant refund checks. The carryback extension will help put much needed cash back into the pockets of real estate & construction business owners. The home-building industry lobbied unsuccessfully for this initiative in the past. Due to the critical state of the housing market, this extension is now back on the table and would greatly assist the construction industry if passed.

The alternative minimum tax ("AMT") "patch" is distinctly absent from the current stimulus bill, mainly due to cost limitations. Raising the AMT exemption levels in 2009 to keep upwards of 20 million taxpayers from facing the AMT is estimated to cost over $80 billion.

One initiative specifically targeting the homebuilding industry will be the likely modification of the $7,500 first-time homebuyer credit, enacted in the Housing and Economic Recovery Act of 2008, by removing the repayment requirement for homes purchased by June 30, 2009.

Potential changes to the estate tax are another area that could impact small business owners. The estate tax was scheduled to be repealed completely in 2010. Under the current plan outlined by the President, the estate tax rates would be locked in permanently at the rates and exemption levels taking effect in 2009. This would exempt estates valuing $3.5 million for individuals, or $7 million for couples who, through estate planning, divide their assets. The value of estates above this threshold would be taxed at 45%. Although Obama has proposed maintaining the current rate and exemption levels, there is speculation that rates might be raised to that of the Clinton-era where the tax exclusion was $1 million and the additional estate value was taxed at 55%.

For additional information on President Obama's economic stimulus plan, contact the author of this article, Adam Polakov, CPA, Manager and Practice Leader of Real Estate and Construction Services with Porter Keadle Moore, LLP.

Porter Keadle Moore, LLP is a founding member of ProfitCrew, an association of accountants and business advisors dedicated to helping construction companies build profitable businesses. For information, contact Adam Polakov at apolakov@pkm.com or visit www.pkm.com.