New law gives options for 2008 operating loss carryback
A net operating loss (NOL) is generated when a business has more deductions than income. Under prior rules, a business that had an NOL could carry that loss back only two years for a refund of taxes paid in those earlier years. (The business could also choose to carry the loss forward for up to 20 years.)
The American Recovery and Reinvestment Act of 2009 changed the carryback period to as many as five years. The new rule applies only to 2008 net operating losses in companies with average annual gross receipts over the last three years of $15 million or less.
Planning opportunities
The carryback periods of three, four, or five years are elective. That means that the taxpayer can choose how long to carry back the NOL as long as it doesn’t exceed five years.
This opens up many tax planning opportunities, especially if taxable income has fluctuated significantly over the years. Not only that, it’s a terrific benefit to taxpayers with NOLs larger than could be absorbed over the traditional two-year period.
As an alternative to carrying the loss back to prior years, you can still elect to forgo the carryback altogether and simply carry your losses forward to reduce future taxes.
Remember that the new NOL rules are elective, and you may choose to carry losses back as you see fit for up to five years. There are filing and time restrictions on this tax break for businesses, so contact us if you need details and filing assistance.
Consider energy-saving home improvements to cut your taxes
President Obama signed the American Recovery and Reinvestment Act of 2009 into law on February 17, 2009. Among the various provisions in the law are new energy tax credits that can really add up to savings for the homeowner. Making energy-saving improvements to your home will help to save on utility bills, enhance your efforts to go “green,” add value to the home, and perhaps reduce your tax bill for 2009. These residential energy tax credits fall into two main categories: energy efficiency improvements and renewable energy systems. In many cases, the Recovery Act adjusts or extends similar energy credits previously available.
Energy efficiency
The Recovery Act adjusts the residential energy property credits previously allowed, increasing the tax credit to 30% and the maximum aggregate cap to $1,500. The credit applies to eligible property placed into service in your principal residence during 2009 and 2010. Qualifying improvements for this energy credit include insulation; exterior windows and doors; central air conditioning systems; water heaters and furnaces burning natural gas, propane, or oil; stoves using
renewable biomass fuel such as wood, pellets, and plants; hot water boilers; electric heat pump water heaters; certain metal roofs; and advanced main air circulating fans.
Installation of these items as part of a newly constructed home does not qualify for the credit. For certain eligible items, the credit can be calculated based only on the cost of materials; for other items, the cost of installation also can be included. This credit is not subject to income phase-outs, and the credit is allowed under the alternative minimum tax.
Renewable energy
The 2009 law also generally removes the tax credit dollar limits for renewable energy systems. Such property includes solar hot water heaters, geothermal heat pumps, and wind energy systems. The tax credit, available through 2016, is up to 30% of the cost, including both labor and materials. Primary residences, second homes, and rental units qualify for this credit; existing and newly constructed structures are eligible.
Now may be the right time to upgrade the energy efficiency of your home. To discuss the tax breaks available for the improvements you have in mind, give us a call. We can help you sort through the details.