Before You
Buy, Study Rules for New Tax Credits
By Michelle Singletary (Washington
Post)
 I
hosted an online discussion recently and one of the
participants was particularly perturbed because he had
purchased a new car on President's Day, Feb. 16.
Had he waited just one day, he would have qualified for
a tax break that allows new car buyers to deduct state,
local sales and excise taxes on their federal returns.
The deduction is available only for taxpayers who
purchased new vehicles on or after Feb. 17 -- when
President Barack Obama signed the American Recovery and
Reinvestment Act of 2009, better known as the economic
stimulus plan.
"I feel duped," the person wrote during the chat. "The
reason I decided on new versus used was because of the
tax credit. I thought I would qualify . . . as the
dealer told me. I would have waited a day to save the
$2,000."
Duped?
I don't think so. It's not the dealer's fault this
person missed out on the credit. The dealer may have
believed the buyer would qualify for the tax break. And
the buyer would have, had Obama signed the bill by
President's Day as was originally planned. But he
didn't.
There's a lesson for this car buyer and a lot of people
confused about various things in the stimulus plan. You
need to separate fact from hearsay when it comes to the
law. Here are some questions I've received from readers
doing just that:
Q: What are the exact dates covered for the tax
deduction for sales taxes on new cars bought in 2009?
A: The deduction for state, local sales and excise taxes
on new cars, light trucks, motor homes and motorcycles
is allowed from Feb. 17 through Dec. 31, 2009. The
deduction is phased out for joint filers with modified
adjusted gross income of $250,000 to $260,000. For other
taxpayers, it's phased out if your modified adjusted
gross income is $125,000 to $135,000.
I am about to buy a new car that I have negotiated from
$56,410 to $49,900. Do I have to pay $49,500 or below
for a vehicle to get the car sales tax deduction?
The deduction is limited to the tax on up to $49,500 of
the purchase price of an eligible motor vehicle.
If you buy your home in 2009, can you take the
first-time home buyer credit on either your 2008 tax
return or your 2009 tax return?
If you purchase a principal residence on or after Jan.
1, 2009, and before Dec. 1, 2009, you can take the
first-time home buyer's tax credit of up to $8,000
either on your 2008 return or next year on your 2009 tax
return. The credit is equal to 10 percent of the home
purchase price, up to the $8,000 limit.
As explained well by the National Association of
Realtors (http://www.realtor.org), there are a few
filing options for first-time home buyers eligible for
the credit this year:
-- If you purchase your home between Jan. 1, 2009, and
April 15, 2009, you can claim the $8,000 credit on your
2008 return, due by April 15.
-- If are planning to close on your home after April 15
but by Oct. 15, you can file for an extension and just
wait until the October tax deadline to file your 2008
tax return to claim the credit. You have up to three
years to file an amended return.
-- If you have already filed your 2008 return and
qualify for the $8,000 credit but want to take it this
year, you can file an amended return on Form 1040X,
which is available at http://www.irs.gov.
-- You could also wait and take the credit on your 2009
tax return or adjust your income tax withholdings now to
get the benefit of the credit before filing your return.
"The key is the date you purchased the home, not the
year for which you are claiming the credit," said Eric
Smith, a spokesman for the IRS.
The first-time homebuyer credit can be claimed on IRS
Form 5405, which also provides additional information
about the credit.
What are the income limits for the first-time home buyer
credit?
You are allowed the full amount of the credit (based on
your home's purchase price) if your modified adjusted
gross income is $75,000 or less ($150,000 or less if
married filing jointly). The credit begins phasing out
when your modified adjusted gross income exceeds $75,000
($150,000 if married filing jointly). The credit is
eliminated at $95,000 ($170,000 if married filing
jointly).
Was there anything in the stimulus plan to allow
penalty-free or tax-free withdrawals from a 401(k)?
Sorry, the American Recovery and Reinvestment Act does
not provide tax relief for early withdrawals from 401(k)
or IRA distributions as some financially weary people
had hoped.
There are a lot of tax breaks in the stimulus plan. Keep
checking the IRS Web site for the latest updates about
the law. Or seek the advice of a qualified tax preparer
or download the latest updates for tax software before
making a financial decision based on what you think the
new law contains. To do otherwise could cost you big
money.
-- On the air: Michelle Singletary discusses personal
finance Tuesdays on NPR's "Day to Day" program and at
http://www.npr.org.
-- By mail: Readers can write to her at The Washington
Post, 1150 15th St. NW, Washington, D.C. 20071
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