The massive American Recovery and Reinvestment Act of 2009 (ARRA), signed into law on February 17^th, could be one of the most important pieces of legislation in a generation. Through direct spending on infrastructure and nearly $300 billion in tax relief, ARRA is intended to be "the first step to get our economy on the road to recovery and pave the way to long-term growth," according to President Obama.

In all, the nearly $800 billion law makes more than 300 changes to the Internal Revenue Code, providing tax relief and other benefits to businesses and individuals. Following is a brief summary of some of the major tax-related provisions.

Tax Incentives for Businesses

Extension of Bonus Depreciation. Last year's Economic Stimulus Act gave businesses the opportunity to recover the costs of capital expenditures made in 2008 at an accelerated rate. Businesses could immediately write off 50 percent of the cost of depreciable property (equipment, computers, etc.) acquired in 2008. ARRA extends the benefit to capital expenditures incurred in 2009.

Extension of IRC 179 Expensing Limits. Under the old law, small businesses were allowed to write off up to $125,000 (indexed for inflation) of capital expenditures subject to a phase-out once capital expenditures exceed $500,000 (indexed for inflation). Last year, Congress temporarily increased the amount of 2008 write-offs to $250,000 and increased the phase-out threshold for 2008 to $800,000. The new law extends these temporary increases for capital expenditures incurred in 2009.

Five-Year Carryback of Net Operating Losses. Under the previous law, qualified businesses could carry back net operating losses (NOLs) to the two taxable years before the year in which the loss arose. Losses could also be carried forward to each of the succeeding 20 taxable years. The law now allows qualified businesses with gross receipts of $15 million or less with tax years ending in 2008, or beginning in 2008 with a special taxpayer election, to carry back NOLs for three, four or five years.

Accelerated Recognition of Historic AMT/R&D Credits. Businesses have another year to accelerate the recognition of a portion of their historic alternative minimum tax or research and development credits in lieu of bonus depreciation. The amount that may be accelerated is based on the amount that the business invests in property that would otherwise qualify for bonus depreciation. This amount is capped at the lesser of six percent of historic AMT and R&D credits, or $30 million. The new law extends this temporary benefit through 2009.

Work Opportunity Tax Credit. Before ARRA, businesses that hired employees from one of nine targeted groups were allowed to claim a credit of 40 percent of the first $6,000 of the employees' wages. ARRA adds certain unemployed veterans and disconnected youths to the list of new employees for whom the business can take credit.

Cancellation of Debt Income. Under current law, cancellation of certain debt is generally included as income when the taxpayer cancels or repurchases the debt for an amount less than its adjusted issue price. The amount of cancellation of debt income is the excess of the old debt's adjusted issue price over the repurchase price. Certain businesses will now be allowed to recognize cancellation of debt income over five years for specified types of business debt repurchased after December 31, 2008, and before January 1, 2011.

Small Business Capital Gains. Old tax law provided a 50 percent exclusion for the gain from the sale of certain small business stock held for more than five years. The new law increases the exclusion to 75 percent for stock acquired after February 17, 2009, and before January 1, 2011. To claim the exclusion, the business cannot have assets over $50 million.

Tax Relief for Individuals and Families

Making Work Pay Credit. This credit allows individuals to claim a credit against income tax in an amount equal to the lesser of 6.2 percent of earned income, or $400 ($800 for married couples filing jointly). It applies retroactively to January 1, 2009, and is extended through 2010.

Individuals with modified adjusted gross income less than $75,000 ($150,000 for married couples filing jointly) will be eligible for the full credit, with a two-percent phase-out rate above that income level. Qualified taxpayers will take the credit through a reduction in their wage withholding, or in a lump sum when filing tax returns for the tax year.

Enhanced First-Time Home Buyer Credit. In 2008, Congress authorized a refundable tax credit of up to 10 percent of the cost of a home (maximum of $7,500), for first-time homebuyers who purchased a home between April 9, 2008, and July 1, 2009. The credit was essentially an interest-free loan that had to be repaid to the government over 15 years in equal installments. ARRA eliminates the repayment obligation (except when the home is sold within three years of purchase) for taxpayers purchasing homes after January 1, 2009. It also increases the maximum value of the credit to $8,000. Availability of the credit is extended to homes purchased before December 1, 2009.

2009 AMT Patch. As expected, ARRA includes an alternative minimum tax (AMT) patch designed to protect nearly 26 million middle-income taxpayers from the dreaded tax. Exemption amounts are increased to $70,950 for joint filers and surviving spouses, and $46,700 for singles and heads of households.

Post-Secondary Education Credits. For 2009 and 2010, the newly renamed American Opportunity Tax Credit (formerly the HOPE education credit) will provide a new credit of up to $2,500 (per eligible student per year) of the cost of tuition and related expenses paid during the taxable year (up from $1,800 under the HOPE education credit). The credit will phase out for those with adjusted gross income in excess of $80,000 ($160,000 for married filing jointly).

Time will tell the full impact of ARRA on the nation's economy. Right now, business owners and individuals need to understand the various provisions of the law and begin planning for how to take advantage of its benefits.

Mark Dalbey, CPA, is a senior manager in Clifton Gunderson's Peoria office. He specializes in tax provision services and compliance.