The Emergency Economic Stabilization Act of 2008

October 10, 2008

After some amount of drama, including a surprisingly recalcitrant House, whose actions led to the inclusion of tax language EAs have eagerly been anticipating, Congress passed (in a 74-25 Senate vote on October 1 and a 263-171 House vote on October 3) the Emergency Economic Stabilization Act of 2008 (HR 1424).  President Bush signed the bill into law the day the House passed it.

What's in the bill? A list of highlights follow:

• AMT patch—the AMT exemption amounts will be $69,950 (MFJ and surviving spouses), $46,200 (single/HOH), and $34,975 (MFS) for 2008. On the upside, the patch is nearly three months earlier than it was last year, allowing IRS a reasonable amount of time to program its computer systems.
• ISO relief—a variety of provisions that assist taxpayers who exercised options (typically in the 2000 market swoon) and found themselves with a requirement to pay tax on 'phantom income.'
• State and local tax deductionthis temporary provision (the ability to deduct state and local sales taxes instead of income taxes) is extended another two years, through the end of 2009.
• Qualified tuition deduction—a means-tested above-the-line deduction for qualified higher education expenses is extended for two years, through the end of 2009.
• Additional standard deduction for real property taxes—a provision allowing non-itemizers to deduct up to $500 (or $1,000 for MFJ) was set to expire at the end of 2008, but has been extended through the end of 2009.
• Research & development credit—one of the higher cost tax provisions, this business provision extends current law through the end of 2009 while also increasing the alternative simplified credit for TY09 and repealing the alternative incremental research credit for TY09.
• 15-year straight-line cost recovery for qualified leasehold, restaurant and retail improvements—the shortened cost recovery period (down from 39 years) is extended until the end of 2009.
• Child tax credit—the income threshold for a refund of the $1,000 child tax credit is lowered $12,050 to $8,500.
• Disaster relief—a variety of provisions are centered on victims of the floods, tornadoes and severe weather that hit the Midwest earlier this year, for Hurricane Ike victims, as well as on victims of all Presidentially-declared disaster areas after December 31, 2007 and before January 10, 2010 (with some carveouts).

In addition, the law contains a slew of energy provisions, including a plug-in electric vehicle credit (available against AMT) ranging from $2,500 to $7,500 and a limited fringe benefit for bicycle commuters. Further, the mental health parity provision in the law requires private insurance plans that offer mental health benefits as part of coverage to offer such benefits on par with medical and surgical benefits.

Also, among the several offsets in the tax package is a provision requiring brokers to report the basis on stock sales. This provision has been kicking around the Hill for a while and its inclusion in a tax bill is not surprising.