ARRA Provisions that Could Affect 2008 Tax Returns

Notice: Historical Content

This is an archival or historical document and may not reflect current law, policies or procedures.

In general, the American Recovery and Reinvestment Act (ARRA) provisions do not impact the vast majority of individuals preparing their 2008 income tax returns due April 15, 2009. Taxpayers should continue to prepare their 2008 tax returns as they normally would. However, there are exceptions for taxpayers who qualify as first-time homebuyers this year as well as small businesses that can take advantage of expanded rules for net operating loss carrybacks.

First-Time Homebuyer’s Credit Expands. Some individuals who buy homes this year will qualify for the first-time homebuyer’s credit. Under ARRA, this credit has increased and changed for 2009 homebuyers. Individuals can claim a credit of up to $8,000 on their 2008 or 2009 tax returns if they buy a house this year before Dec. 1, 2009, and qualify as a first-time homebuyer. A first-time homebuyer is defined as someone who has not owned a primary residence during the three years prior to the date of purchase. In the case of a married couple, both spouses may not have owned a primary residence within the past three years.

Unlike the credit for 2008 first-time home purchases, the credit for 2009 purchases does not have to be repaid as long as the buyer or buyers remain in the home for three years.

Those who qualify for the first-time homebuyer credit and purchase a home this year before Dec. 1, can claim the tax credit on either a 2008 income tax return or a 2009 tax return.

The first-time homebuyer credit begins to phase out for taxpayers whose modified adjusted gross income exceeds $75,000, $150,000 for married taxpayers filing jointly.

NOTE: The credit cannot be claimed until the purchase of the home is final.

Net Operating Loss Carryback. This provision enables a small business with a net operating loss (NOL) in 2008 to offset the loss against income earned in up to five prior years. Typically, an NOL can be carried back for only two years. Some taxpayers must decide whether to use this special carryback by April 17, 2009. Details are outlined in Revenue Procedure 2009-19.

Return to IRS Information Related to the American Recovery and Reinvestment Act of 2009