As tax time approaches, businesses in the real estate and construction sectors will have to reconcile a challenging 2009. However, several pieces of legislation were signed into law over the course of the year that can provide some assistance, particularly to the residential construction industry. Before starting on your 2009 tax return, you should be aware of the following provisions.

New Net Operating Loss Carryback Provisions
The longstanding rule related to carrybacks of net operating losses (NOLs) allowed losses to be carried back to the two preceding tax years. Any unused NOLs were then carried forward for 20 years (which the new laws did not change). The American Recovery and Reinvestment Act of 2009, enacted in February 2009, allowed NOLs generated in 2008 to be carried back to recapture taxes paid in 2003, 2004 or 2005. A business (as well as the owners of a business in the case of a limited liability company, partnership or S Corporation) could elect which year to carry back the NOL and recapture the taxes. However, there were limitations on the size of businesses eligible for this new provision.

On November 6, 2009, President Obama signed the Worker, Homeownership and Business Assistance Act of 2009. This Act extended the ability to carry back NOLs generated in 2008 or 2009 for up to five previous tax years. The Act also removed the size limitation and made this relief available to all business (except those that received payments under the Troubled Asset Relief Program). Any NOL carrybacks to the fifth preceding tax year are now limited to 50% of a taxpayer’s taxable income in that year and any unused NOLs are carried to later tax years. The ability to utilize these NOL carryback provisions could provide much needed cash flow from the recapture of taxes for businesses and their owners. Performing a cost segregation study can also enhance the benefits of an NOL carryback.
Click here for our previous posts on NOL carryback

COD Income Deferral
For businesses that went through a significant debt restructuring or workout scenario in 2009 or face this in 2010, a provision added by the American Recovery and Reinvestment Act of 2009 (ARRA) could help reduce the sting of any cancellation of indebtedness (COD) income.

Generally, if a taxpayer has any debt forgiven, the tax rules require the amount forgiven to be included in taxable income. Common COD examples that would result in the reacquisition of debt for purposes of this new provision include the restructuring of a bank loan, the repurchase of a bond for less than its face value and an outright forgiveness of a note. Under the provisions of ARRA, debtors have the ability to defer (through an election) COD income from the “reacquisition” of an applicable debt instrument in 2009 or 2010. The deferred COD income is recognized ratably over the five-year period from 2014 through 2018. Essentially, a taxpayer with a qualified reacquisition of debt receives a potential 10-year window to recognize the income — the 2009 through 2013 timeframe when the COD income is deferred and then the 2014 through 2018 timeframe when the deferred income is recognized ratably.

Tax planning issues to consider before electing this new provision include the following:

• The potential to exclude the COD income under another tax provision
• Any current and future stock and partnership interest transfers
• The ability to utilize any NOL carryforwards against the COD income

Click here for our previous post on the taxation of COD income

Homebuyer Tax Credits
In an effort to provide an additional boost to the housing industry in late 2009 and early 2010, the Worker, Homeownership and Business Assistance Act of 2009 extended the $8,000 first-time homebuyer tax credit until April 30, 2010. Congress also extended the credit to non-first-time homebuyers by allowing a $6,500 credit as long as the buyer meets certain ownership requirements.  For all qualifying purchases in 2010, homebuyers have the option of claiming the credit on either their 2009 or 2010 tax returns.
Click here for our previous posts on homebuyer tax credits

If you have any question about these or any other provisions as you prepare your tax returns, please do not hesitate to contact your CB&H tax professional.

Related posts:

1. New Recovery Act Expands Net Operating Loss Carryback
2. New Law Extends and Expands NOL Carryback Provisions
3. New Recovery Act Expands Stimulus Relief to Real Estate and Construction Sector