Stimulus Plan Includes AMT Patch, Tax Benefits

The economic stimulus bill–the American Recovery and Reinvestment Act of 2009–approved by the House and Senate on February 13, and which will be signed by President Obama on February 17, includes a number of tax provisions that may be of interest to advisors and their clients. It also would sharply limit compensation to the highest-paid executives at firms that receive money from the Treasury Department’s TARP program. Those restrictions–prohibiting cash bonuses exceeding one-third of their annual pay and most other short-term incentive compensation for the top five officers and 20 highest-paid executives at those firms–were not favored by the Administration or the Treasury Department, but were inserted by Senate Democrats prior to passage of the bill.

Among the tax provisions is a further cap to the Alternative Minimum Tax, which would extend AMT relief for nonrefundable personal credits and increase the AMT exemption amount to $70,950 for joint filers and $46,700 for individuals. The bill would also exclude interest on all private activity bonds issued in 2009 and 2010 from the AMT; last year, tax-exempt private activity housing bonds were excluded by Congressional action from the AMT.

Certain taxpayers (those with AGI of less than $125,000 or $250,000 for a joint return) will get a state and local sales and excise tax deduction on the purchase of new cars, RVs, light trucks, and motorcycles through 2009. The existing tax credit for plug-in electric drive vehicles was increased and modified as well from its $2,500 base level; the credit is allowed against the AMT.