In late September, the President signed the final tax incentive legislation before the mid-term elections. This is important pro-taxpayer legislation encouraging the purchase of M&E and business cars, and even undertaking leasehold improvements.  Here are some of the highlights of the new law.

• The law expands expensing of capital recovery assets for 2010 and 2011 and revives bonus depreciation for 2010. It permits expensing of capital assets up to $500,000 (with a phase-out beginning at $ 2 million in 2010 and $ 800,000 in 2011).  The immediate write-off in 2010 and 2011 will not phase-out completely until property additions exceed $2.5 million.  
• Another significant measure – not to be overlooked -- will apply for 2010 and 2011 and permit taxpayers to expense up to $250,000 on many leasehold improvements.  
• In addition, bonus first year depreciation will extend through 2010.  Auto and light truck purchases are also benefited.  The first year business-auto write-off increases in 2010 by $8,000 to $11,060 for new autos and $11,160 for new light trucks or vans qualified for bonus depreciation.

A significant change not to be overlooked is 100-percent exclusion for gain from the sale of “Qualified Small Business Stock” acquired after September 27, 2010, and before January 1, 2011, provided it is held for at least five years.  This is an extraordinary measure.  No regular tax or alternative minimum tax is imposed on the sale of this “C-Corporation” stock held for the minimum required period.  (For new businesses, the law also increases the deduction for startup expenses to $10,000 (subject to a phase-out).

The new law will also permit the carry back of small business general business credits for five years beginning in 2010 for non-publicly-traded, “eligible small businesses” with gross receipts no more than $50 million.

This legislation, though, includes two revenue raisers that can have broad impact.  After 2010, persons receiving rental income from real property will have to file information returns (Forms 1099 and 1096) for payments to service providers of $600 or more during the year for rental expenses.  The new law will also double penalties for failure to timely file information returns and dramatically increases the ceiling on such penalties.

This is only a summary of the new law, and we encourage you to contact us at 713.622.1120 if you have any questions so that you can maximize the benefits of these changes and avoid any traps, which are an ever present feature of tax laws.