Tax breaks for you in the federal bailout

February 5, 2009
Mark E. Battersby
Mark E. Battersby

The government's relief package comes with considerable tax breaks for professionals.

Key Points

In a 90-minute span last fall, Congress passed and President Bush signed into law an historic financial markets rescue bill, the Emergency Economic Stabilization Act of 2008, or EESA.

One portion of the bill raised the Federal Deposit Insurance Corp. and National Credit Union Share Insurance Fund deposit insurance limits from $100,000 per account to $250,000, a move designed specifically to aid small-businesses owners and professionals, such as doctors, with large deposits at risk. (Remember, however, that these increased levels expire after 2009.)

Although the new law's primary purpose was to solve the credit crunch in the financial markets, it was also one of the largest tax bills in recent years.

While the bill's estimated tax savings are figured over a 10-year period for budget purposes, the lion's share of the expected savings occurs in the 2008 and 2009 tax years.

Consequently, with these tax savings a reality-and with more of them on tap-tax planning takes on a special urgency for every physician, medical practice, and business wanting to take full advantage of these new and, in many cases, temporary, breaks. Remember however, as is the case with all of EESA's provisions, professional guidance is strongly recommended.

FEWER NEED DREAD THE AMT

The new bill increased the income threshold at which people begin to feel the effects of the dreaded alternative minimum tax. Although originally designed to prevent the wealthy from avoiding taxes, the AMT has affected an increasing number of middle-class taxpayers because it was not indexed for inflation. Each year, Congress has passed a series of "patches" to boost the threshold.

Currently, a taxpayer receives an exemption of $33,750 (individuals) and $45,000 (married filing jointly) under the AMT. To hold at bay the amount of taxpayers subject to the tax, Congress has increased the exemption amounts to $46,200 (individuals) and $69,950 (married filing jointly) for 2008. The provision also allows personal credits against the AMT. Estimated savings is almost $62 billion over 10 years (the way Congress measures the cost to the Treasury and the savings to taxpayers).

LEASEHOLD IMPROVEMENTS

Earlier tax law changes shortened the cost recovery period for improvements made to property leased by a medical practice from 39 to 15 years. The new law not only extends that tax break to the end of 2009, it allows "retail" businesses and new restaurants to benefit from a similar shortened recovery period, but only for 2009. The estimated savings from this provision is $8.7 billion over 10 years.

Under the new law, qualifying improvements to leased property, along with retail improvements, will be eligible for 15-year cost recovery rather than the 39-year period. Even better: Clinics that could, in some instances, qualify for the retail write-offs can be owner-occupied. The write-off for retail improvements applies to owner-occupied practices and businesses, as well as leased establishments.

A GOOD TIME TO GO GREEN

The tax law changes extended a number of energy tax incentives, many of which will also help medical practices and businesses. A number of them also go beyond the one- or two-year extension periods authorized by lawmakers for non-energy tax breaks.

Specifically, the new law extends several energy-efficiency and energy-property tax incentives. Among the renewable-energy incentives are, for example, an eight-year extension of the investment tax credits allowed for expenditures made by a practice or business for solar energy, as well as breaks for wind, geothermal, and other alternative sources.

A tax "credit" offsets the medical practice's tax bill, unlike a tax "deduction," which merely reduces the taxable income upon which the bill is based.

In addition to tax credits for utilizing solar or alternative energy in the medical practice, there is also a unique tax deduction available to anyone making a "commercial" building more energy efficient.

Under EESA, tax deductions for making those "commercial" buildings more energy efficient were extended through December 31, 2013. They are expected to generate tax savings in excess of $890 million over a 10-year period.

Rather than a deduction for the cost of equipment or improvements needed to make a commercial building more energy efficient, however, the deductible amount is a flat $1.80 per square foot of building floor area for buildings achieving a target of 50 percent energy savings.

Under the extended provision, the savings must be accomplished through energy and power cost reductions for the building's heating, cooling, ventilation, hot water, and interior lighting systems. Reduced deductions are available for physicians achieving smaller energy efficiencies in their commercial buildings. (To learn more about making environmentally friendly improvements to your practice, go to http://memag.com/green.)