Benefits for Buying a Car
Q. I am a single-income household making less than $75,000 a year. I recently had to turn in a leased vehicle that was at the end of the lease as of 1-29-09. I purchased a NEW car on 1-16-09 from the same dealership I had been leasing from. Will I qualify for the stimulus package refund? — Laura Stone, Greenville, S.C.
Q. Does the car-buyer tax deduction cover cars bought starting in November 2008, as in the Senate bill, or starting when the bill is enacted? —Whitney Muse, Philadelphia
A. Unfortunately, the car deduction goes into effect for purchase on or after the day the bill is signed, according to Clint Stretch, the managing principal of tax policy at Deloitte L.L.C. in Washington. As Mr. Stretch noted, it may be a slow weekend for car sales. Congress passed the bill Friday, and President Obama is expected to sign the bill by Monday.
After the bill is signed, you will be able to take a deduction for state and local taxes, as well as excise taxes, paid on a new (but not used) vehicle, up to $49,500. The tax break is an above-the-line deduction, which means that you can take the deduction, even if you do not itemize other deductions on your tax return. The deduction begins to phase out for single tax filers with adjusted gross income of more than $125,000, or $250,000 for married couples filing jointly. Remember, the break applies to most vehicles, as long as they weigh no more than 8,500 pounds. That means sport utility vehicles, light trucks, motorcycles and even motor homes qualify, according to CCH, a tax information service.
Extended Health Benefits
Q. Can you tell me if the House provision regarding the long-term employees (10 years or age 55) and their eligibility for Cobra made it into the final bill? I can’t find any references to it, which I guess says something. — George Baker, Boise, Idaho
Q. Does it still contain the provision that those forced out of their jobs after Sept. 1, 2008, and did not elect Cobra, will have an additional 60-day period to elect Cobra? — Dennis S., San Diego
A. For those unfamiliar with Cobra, it’s the law that requires your company to provide you with health benefits for up to 18 months or so after you are fired or leave your job voluntarily. Unfortunately, it’s not free. It can often cost more than $1,000 a month, especially if you are seeking coverage for your entire family.
A provision in the House bill would have made Cobra health benefits available to workers on the job for more than 10 years and those older than 55 until they were eligible for Medicare, but it was not included in the final draft.
The period in which Cobra benefits can be requested was extended, however, and the stimulus bill eases the cost burden. To summarize, I’ll point you to Ron Lieber’s most recent Your Money column.
The federal government will subsidize 65 percent of the premium for up to nine months. To be eligible, you need to have been forced out of your job between Sept. 1, 2008, and Dec. 31, 2009. Also, your income in the year you receive the subsidy cannot be more than $125,000 for individuals or $250,000 for married couples filing their taxes jointly.
If you lost your job after Sept. 1, 2008, and declined Cobra coverage, you’ll now get another chance. Call your former company in the next two months to find out how this will work.
More on Cobra
Q. I was laid off in September 2007. My Cobra is expiring April 1 of this year. Why did they only include a portion of 2008? I need help on this. Any suggestions? — Martha W.
A. To keep the cost of the bill under control, Congress had to set certain limits. That’s probably why they couldn’t extend the Cobra subsidy too far back. Individuals may extend their Cobra coverage beyond the 18-month period if they become disabled, according to the Department of Labor Web site. But if you’re perfectly healthy, you may have to shop for insurance on your own. If that’s the case, I’d recommend reviewing Your Money’s Health Insurance primer, which outlines several options for buying coverage.
Q. I am a retired federal worker collecting a federal pension that is taxable. Will I receive the income tax credit of $400? — Mel Shrader, Mesa, Ariz.
Q. Will people who derive all of their income from annuity payments receive the tax credit, or only those people who have “earned income”? — Arnold
Q. Could you explain exactly who is, and who is not, eligible for the $400/$800 tax rebates? What about married couples that file together? I made $40,000 and my wife made $35,000 last year. Will we each get the full amount, or will we get a reduced amount? — Michael W.
A. The operative word in the “Making Work Pay” tax credit is “work.” For 2009 and 2010, this provision provides a tax credit of up to $400 for working individuals and $800 for married couples filing their tax returns jointly. You can calculate your credit by taking 6.2 percent of your earned income (and subtract it from the other federal taxes you owe). The credit begins to phase out at income levels of $75,000 for individuals and $150,000 for married couples filing jointly. Since the credit is “refundable,” you’ll get money back even if you have no federal income-tax liability.
The bill also provides a one-time payment of $250 in 2009 to retirees and disabled people receiving Social Security benefits. A separate $250 credit is also provided to certain government retirees who are not eligible for Social Security. If you are also eligible for the income-tax credit, however, it would be reduced by $250, according to Mark Luscombe, principal analyst at CCH.
Home Buyers’ Credit
Q. Is the tax credit for first-time home buyers in the stimulus bill only for homes purchased in 2009 or does it also apply to homes eligible for the $7,500 interest-free loan enacted last year? The information currently online seems to give conflicting accounts. — Ellen Rozan, Chapel Hill, N.C.
A. The latest bill provides first-time home buyers with a refundable tax credit of up to $8,000 for purchases made after Jan. 1, 2009, but before Dec. 1, 2009. The credit phases out for single taxpayers with adjusted gross incomes that exceed $75,000 (or $150,000 for married couples filing jointly). If you sell the home within three years, you’ll forfeit the credit.
First-time home buyers who made purchases between April 9 and Dec. 31, 2008, however, will continue to be covered by the original credit enacted last year for first-time home buyers. It’s delivered in the form of a refundable tax credit equal to 10 percent of the home price, up to $7,500. But it really amounts to an interest-free loan from the government because you need to pay back the amount you receive over 15 years (or earlier, if the home is sold). The income limits that apply to the new credit, which you do not need to pay back, also apply here, according to Maureen McGetrick, a tax partner with BDO Seidman in New York.
More on Home Buying
Q. I recently got married. I have never owned a home, but my wife owns one with her brother, which she will deed to him when we buy a house together. Can I get the home buyers’ tax credit by buying the home in my name, then adding her name to the deed later? — Hank Y.
A. That’s a tricky one. Since you are married, that means both you and your spouse have to meet the “first-time home buyer” requirement, which means that neither of you owned a principal residence for three years, Ms. McGetrick said. If the home your wife owns with her brother is considered an investment property and not a principal residence, it won’t affect your eligibility for the credit, she said. But be sure to check with a tax adviser regarding the specifics of your situation.
Co-Signers and the Tax Credit
Q. I was curious about the provision in the newly formulated stimulus plan for first-time home buyers. I am in the process of purchasing my first home, and because of credit restraints I had to have my mom as a co-signer. Is this going to affect my eligibility for the tax credit? — Ryan, Manchester, N.J.
A. If your mother is simply serving as a co-signer, you will probably still be able to claim the entire credit on your own. The Internal Revenue Service issued guidelines on how to allocate a similar credit (the $7,500 credit mentioned above) among unmarried taxpayers. And Ms. McGetrick expects the same general rules to apply to the latest tax break.
The allocation of the tax credit should be “based on the underlying economics of the transaction,” she said, including how much each party contributed to the down payment, who is responsible for paying the mortgage and the ownership interests of the parties involved. It may be more beneficial for one person to take the credit, so keep that in mind. Whatever you decide, seek the counsel of a tax adviser.
Alternative Minimum Tax
Q. What are the changes in the A.M.T. that are part of the stimulus package? — Eugene Monaco, Albany.
A. Every year, Congress typically passes what’s become known as the alternative minimum tax “patch,” which shields millions of taxpayers from paying the more onerous A.M.T. by increasing the amount of exempt income. This year, the patch was included in the stimulus bill. For 2009, the amount of exempt income is increased to $46,700 for single filers, up from $46,200 in 2008, according to CCH. And for married couples filing joint returns, it rises to $70,950 from $69,950.
Reading the Stimulus Bill
Q. Where can I read the stimulus bill and is there anything in there about your 401(k)?
A. Most people have watched their 401(k)’s drop like a rock, but there’s nothing in the bill addressing the accounts specifically. If you want to try to figure out how long it might take for your account to recover, check out Your Money’s Comeback Calculator.
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