Filling in the details on the stimulus bill

The Baltimore Sun

Many of us have heard about some of the tax breaks in the stimulus package, but the details have been skimpy.

Readers have been e-mailing me questions seeking clarification, particularly on the first-time homebuyer's credit.

This credit is a revision of one passed last year that was worth 10 percent of the home's price - not to exceed $7,500 - on purchases from April 9 last year through June 30 this year. The catch: The credit was really an interest-free loan that must be repaid over 15 years. The new and improved credit is worth up to $8,000 on purchases made this year through Nov. 30. You won't have to repay the credit as long as you don't sell the house within three years.

Here are answers to some readers' questions, along with information about some tax breaks that aren't getting a lot of publicity:

Is there an income limit for the first-time homebuyer's credit?

Yes. Like last year's credit, this one starts to phase out once income reaches $75,000 for singles and $150,000 for married couples filing jointly, says Mark Luscombe, principal analyst with CCH, an Illinois provider of tax information.

Who qualifies as a first-time homebuyer?

You could be eligible for the credit if you haven't owned a house the previous three years.

We are about to close on our home purchase. We have not filed our taxes yet. Can the $8,000 credit be applied toward our 2008 return, or do we have to wait until 2009?

You can claim the $8,000 credit on your 2008 return, Luscombe says.

I bought my house on Jan. 28. I already filed my taxes, and I am getting the $7,500 tax credit. However, what do I do now that it has increased to $8,000?

You will have to file an amended return, Luscombe says.

To be clear on the form of the homebuyer's credit: Let's say this year I am getting $2,000 back in taxes. If I buy a house this year before November ... I would get a $10,000 refund next year, never to be paid back?

Yes. This is a refundable credit, meaning even if you don't owe any taxes, you'll get the credit through a refund. You just have to stay in the house for at least three years.

It looks like those of us who bought a house last year and took the $7,500 credit on our taxes this year will still have to repay our "credit," while those who buy after Jan. 1 this year will not have to pay it back.

Yes, those buying a house last year will have to repay the credit. But those who bought a house before April last year got no credit at all.

"The tax law is very unfair," says Barbara Weltman, author of J.K. Lasser's 1001 Deductions & Tax Breaks. "Look at all the income cut-offs for the various benefits. If you're above the limit, too bad."

Will unemployment benefits be free of federal tax as a result of this bill?

Yes. The first $2,400 of benefits for this year only won't be subject to income taxes.

Though you didn't ask, workers losing their jobs from Sept. 1 last year through the end of this year can get help with insurance premiums under COBRA, the federal law that allows you to keep coverage under an old employer's plan. You will pay 35 percent of the premium cost, with the government subsidizing the rest through a tax credit to employers for up to nine months, according to CCH.

Do you have to file an itemized return to get the sales tax deduction on new car sales?

No. You will be able to deduct sales tax on new vehicle purchases of up to $49,500 without having to itemize.

Does "new car purchases" include used-car purchases (new to me)?

It means never been used, says Margaret Rosenberg of Thomson Reuters' Tax & Accounting.

Congress, though, expanded the tax break from an earlier version. It will apply to purchases of motorcycles and mobile homes, she says.

This deduction starts phasing out once income reaches $125,000 for singles, and $250,000 for joint filers, Rosenberg says. It ends once income hits $135,000 for singles and $260,000 for joint filers.

A question that hasn't been asked: Is there a tax break for nonworkers?

While the $400 Making Work Pay credit goes to most workers, retirees and others who are ineligible for that could get a $250 one-time payment instead. The payment is available to those receiving Social Security, Supplemental Security Income, Railroad Retirement Benefits or Veterans Disability Compensation.

Some details are still unclear. "We have no clue how or when it will be paid out," Weltman says.

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