Homebuyer Credit, NOL Carrybacks Extended; Mandatory E-Filing Enacted

On November 6, President Obama signed the Worker, Homeownership, and Business Assistance Act of 2009, P.L. 111- 92. In addition to its main provisions on unemployment compensation extension, the act contains a handful of tax provisions, all of which were added by the Senate and then agreed to without change by the House. These include changes to the first-time homebuyers’ credit, increased NOL carrybacks for small businesses, and mandatory e-filing for most tax return preparers.

First-Time Homebuyers’ Credit

The act extends and modifies the Sec. 36 homebuyers’ credit, which was first introduced by the Housing Assistance Tax Act, P.L. 110-289, in 2008. The credit had been scheduled to expire December 1. Under the act, it is extended to May 1, 2010, and is modified so that taxpayers do not have to close on the house by that date but merely have entered into a binding contract by that date. To be eligible for the credit, taxpayers who have entered into a binding contract to purchase an eligible principal residence by May 1, 2010, must close before July 1, 2010.

In another major change, the credit is also modified to apply not just to firsttime homebuyers. Under the act, taxpayers who have owned and lived in their former residence for five consecutive years out of the preceding eight years would be treated for purposes of the credit as first-time homebuyers. However, instead of the full $8,000 credit, such long-term residents would be eligible for only a $6,500 credit.

The act increases the income limitations for credit eligibility to $125,000 for individuals (and $250,000 for couples). It also introduces a purchase price limit: No first-time homebuyers’ credit will be allowed for the purchase of any residence if the purchase price is more than $800,000. In addition, the act extends the benefits of the credit to members of the military or Foreign Service on extended duty outside the United States and waives the recapture rule for those individuals.

Apparently reacting to reports that some taxpayers had been titling residences in their children’s names in order to qualify for the credit, the act sets a minimum age of 18 to qualify for the credit.

NOL Carrybacks

The American Recovery and Reinvestment Act, P.L. 111-5, allowed qualified small businesses (those with less than $15 million in annual gross receipts) to carry back a 2008 net operating loss (NOL) for up to five years. The act extends that treatment to 2009 NOLs, although it limits the amount of loss that can be carried back to the fifth year and extends the treatment to all businesses, not just small businesses.

Mandatory E-Filing

The act also mandates e-filing by almost all return preparers. Section 17 of the act requires any return preparer who files more than 10 individual income tax returns per year to e-file those returns. This requirement will go into effect in 2011.

Other Tax Provisions

The act increases the penalty for failure to file a partnership or S corporation return (Secs. 6698 and 6699) from $89 to $195.

The act also extends the 0.2% FUTA surtax in Sec. 3301 through the first six months of 2011 (the surtax had been scheduled to expire at the end of 2009).