Breaking Down the 2009 Stimulus Package.

The first Time Homebuyer credit, making work pay credit, social security recipient tax credit, and more.

Over the past several months there has been much talk about what the new stimulus package includes and how it will affect all of us.  I have heard so many misinterpretations and confusion surrounding these new laws that I wanted to make sure my clients were well-informed.  Below are summaries of some of the major parts of the new stimulus package that could possibly benefit you. 

First-Time Homebuyer Credit- The new law increases the maximum fist-time homebuyer credit to $8,000 and generally eliminates having to pay the credit back (in 2008 the credit was $7,500 and must be paid back). A first time homebuyer is defined as you (and your spouse, if married) have not owned a home in the three years prior to a purchase. Generally, there is no requirement to pay back the credit for a principal residence purchased in 2009. The obligation to repay the credit on a home purchased in 2009 arises only if the home ceases to be your principal residence within 36 months from the date of purchase. The full amount of the credit received becomes due on the return for the year the home ceased being your principal residence. This credit is available for homes purchased after 2008 and before December 1, 2009.  The credit can be claimed in either of two ways: 

  1. Amend your 2008 tax return now and receive your up to $8,000 credit immediately.  I am available to file amended returns and you can contact me anytime at 651-647-4935.
  1. Claim the credit next year on your 2009 tax return.

Making Work Pay Tax Credit- This credit is 6.2% of earned income, up to a maximum credit of $800 for married couples filing jointly and $400 for others.  The credit effectively offsets the 6.2% Social Security tax on the first $6,452 of earnings for a single worker, or the first $12,904 of earnings for joint filers. However the credit is phased out by 2% of modified adjusted gross income exceeding $75,000 or $150,000 on a joint return.  For employees the credit will generally be implemented through reduced income tax withholdings.  The IRS has released new withholding tables incorporating the credit that will result in higher take home pay.  Self-employed individuals can claim the credit when they file for 2009.  It is possible that some employees may not receive the full credit to which they are entitled because they have little or no withholdings.  Presumably, adjustments will be required on the 2009 tax return to reconcile the amount received during the year with the maximum credit allowed.

$250 payment to social security recipients and government retirees- A $250 check or electronic deposit will be paid within the next 4 months to recipients of social security, railroad retirement, or veterans disability benefits.  If such persons have earnings, the $250 payment reduces the Making Work Pay credit that would otherwise be available. Government retirees whose earnings were not covered by social security and who do not receive the $250 check will be entitled to a $250 credit when they file their 2009 return.

Home Energy Credits- They are back!  After a hiatus in 2008 the new law raises the energy credit for improvements to a residence to 30% and increases the maximum dollar cap to $1,500.  This covers expenditures for insulation materials, exterior windows (including skylights), exterior doors, central air conditioners, natural gas, propane, and oil water heaters or furnaces, hot water boilers, electric heat pump water heaters, certain metal roofs, stoves, and advanced main air circulating fans.  These are effective for purchases/installations after 2008 and before 2011.

New car-buyer deduction-  If you buy a new vehicle this year you may be entitled to a deduction for the sales tax attributable to the first $49,500 of the purchase price.  The deduction phases out if adjusted gross income exceeds $125,000 for single filers and $250,000 for joint filers.  This new deduction is only available for purchases between Feb 17 and Dec 31, 2009.  The list of eligible vehicles includes cars, motorcycles, light trucks, and SUV’s as long as you are the original buyer and the vehicle doesn’t weigh more than 8,500 pounds.

Please contact me anytime with questions on how to improve your financial and tax situation.  651-647-4935