In the last few months, there have been two big “stimulus” related items discussed in the House and Senate. The first was talk of extending the first time homebuyer credit in both time (when you could use it) and scope (who qualified). The second was about extending unemployment benefits by an additional 13 weeks.

Well, it turns out both are going to become a reality as the Senate passed H.R.3548 – Worker, Homeownership, and Business Assistance Act of 2009 two days ago. The House passed their version in late September and just yesterday agreed to the Senate amendment to the bill (this is the “marrying” up part). The bill is on its way to the White House, if it hasn’t been signed already.

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Representative Kurt Schrader, Democrat from Oregon, and Representative Steve Driehaus, Democrat from Ohio, have co-sponsored a bill, H.R. 3842, that would amend the Internal Revenue Code of 1986 to extend the first time homebuyer tax credit.

The current first time homebuyer credit is set to expire on December 1st, 2009. Schrader’s bill would do two crucial things:

• The program would be extended to October 1st, 2010,
• Homes purchased “after 2008,” rather than “in 2009″ would be elivible.

There is also one other change, you could treat the purchase of a home after December 31st, 2009 and before October 1st, 2010 as occurring on December 31st, 2009 for tax purposes. In other words, if you bought the house in 2010, you could take the credit on your 2009 tax return.

Don’t get too excited just yet, the bill was introduced on the 15th and was referred to the Committee on Ways and Means. Several bills just like this one have been introduced over the last few months and died in the Committee on Ways and Means (HR 1993, HR 2606, HR 2655, HR 2905… the list keeps going).

Yesterday, the House of Representatives voted 416 to 0 to pass the Service Members Home Ownership Tax Act of 2009 which extends the current $8,000 first-time home buyer tax credit for another 12 months for members of the military, Foreign Service, and intelligence corp who served at least three months of qualified overseas duty in 2009. The program is set to expire on November 30th, 2009 for everyone else and the justification for the extension makes sense. If you’ve been serving abroad for our country, it makes it very difficult for you to look for a house and take advantage of the program. Extending it another year certainly makes sense.

At the moment the bill has passed only the House of Representatives, it or a similar bill needs to pass the Senate, then reconciled, then signed by the President before it is law.

“If you are in a conflict zone, you don’t have time to get together with your spouse and family to go house shopping,” says Rep. Ron Kind, a Wisconsin Democrat. Rep. Dave Camp, a Republican from Michigan, expressed similar concerns. “A lot of service members get called overseas at a moment’s notice,” Camp says. “And because of the time limit on the legislation now, they can’t always take advantage of it, not because of anything that they did or didn’t do but because of the unique nature of serving in our armed forces.”

It’s estimated that this will result in an additional 10,000 home sales, likely clustered around military facilities, at no extra cost. It’s revenue neutral because there are other revenue generating provisions included in the bill. The Senate received the bill yesterday and is set to vote on it fairly quickly.

As for the original credit set to expire on November 30th, there are discussions about extending the credit an additional six months.

House Votes to Extend First-Time Home Buyer Tax Credit for Service Members [U.S. News & World Report]

Every year about this time, when the Bureau of Labor Statistics (BLS) releases inflation data, specifically the CPI-U, experts from a variety of magazines and newspapers try to predict what the tax brackets will be the following year. This is possible because many figures in the tax laws are based on inflation, such as the standard deduction, contribution limits for Traditional and Roth IRAs, and the size and placing of the tax brackets themselves.

This year, the Tax Foundation is first out the gate with their prediction that everything will essentially remain the same as inflation was a mere 0.19%. When they performed this exercise in predicting the 2009 federal income tax brackets, they were 100% correct. I’m fairly confident that these numbers will be accurate when the IRS officially announces the tax brackets for 2010.

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If you took advantage of the Cash for Clunkers program to buy yourself a brand new vehicle, you might be wondering about how you deal with the taxes involved in getting that $3,500 or $4,500 voucher. The IRS isn’t in the business of letting you get something for nothing!

Federal Taxes

You might be surprised to learn that there are no federal tax consequences. The IRS does not consider the voucher as income so you won’t need to pay any taxes on it. You can also take advantage of any State and Federal tax incentives for buying hybrid vehicles, the Cash for Clunkers voucher doesn’t cancel that out (something the dealer probably told you if you purchased a qualifying hybrid vehicle). For a full list of those vehicles, as well as how much of a credit you receive, visit Fueleconomy.gov’s Energy Tax Credits for Hybrids page.

State & Local Taxes

You may have to pay taxes to the state or local government on the tax voucher though. For example, in Maryland, you pay a 6% sales/excise tax on the price of a car when you register it. If you purchased a car with a voucher, you have to pay the 6% tax on the full purchase price of the vehicle including the voucher. So on a $3,500 voucher, Maryland residents pay $210. On the $4,500 voucher, Maryland residents pay $270. The voucher is not recognized as income in the state of Maryland, but you still pay taxes through sales tax.

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If you’re signed up for the Bargaineering newsletter, I included a mention of a potential $15,000 homebuyer credit in the latest Thursday email. The $15,000 homebuyer’s credit was introduced by Senator Johnny Isakson (GA-R) that would increase the current $8,000 first-time homebuyer credit to $15,000 and could be used by anyone who bought a primary residence, not just first-timers. Another crucial change would be the removal of the current income limits. Isakson played a big role in getting the first $8,000 homebuyer credit into law. The logic behind this increase is in stimulating the “move-up market.” That is, those going from their first home to their second home. This US News article has more “expert” opinion on the subject if you’re interested, but I wanted your opinion.

My feelings about this potentially new credit are mixed. On one hand, I recognize the importance of stimulating the housing market. On the other, it’s another $32 billion of spending. What’s $32 billion in a budget of trillions?

I don’t like the slippery slope we’re going down. First we had the first-time homebuyer loan, then the $8,000 homebuyer credit, and now potentially a $15,000 homebuyer’s credit – all benefiting the housing industry. We have the cash for clunkers program, which recently passed both chambers of Congress and will likely be signed into law soon, which benefits the auto industry. All these programs to spur spending, which is important during a recession, but is it the right thing to do?

What do you think?

(Photo: billtex48)

Reader TTFK sent me an email this morning about the “Credit for Qualified Retirement Savings Contributions,” also known as the Saver’s Credit, claimed on Form 8880, a tax credit I haven’t covered recently. The Retirement Savings Contribution tax credit is a tax credit, up to $1,000 ($2,000 for joint filers), for contributions you make into qualified retirement accounts. It’s a great incentive for you to save towards your retirement if you’re able to and those who earn less than $26,500 ($53,000 married filing jointly) qualify for some of the tax credit. Unfortunately, if you earn more than that, you don’t qualify.

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I’ve been getting a lot of emails about what people are calling a 2009 stimulus check, passed by Congress and signed by President Obama last month. People are confused, wondering what the stimulus check is, if it’s a tax credit, who is eligible, etc. It’s a little confusing but I think I can put it all to rest.

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CNNMoney has broken down the details of the latest stimulus package and has the following to say about the American Opportunity Tax Credit, which was a refundable credit pushed heavily by Pennsylvania Representative Chaka Fattah (D):

New temporary college credit: The bill introduces the American Opportunity Tax Credit, which would be in effect for 2009 and 2010. It expands the existing Hope Scholarship tax credit and would be worth as much as $2,500 for higher education expenses, up from $1,800 currently.

The full credit would be available to those making less than $80,000 ($160,000 for joint filers). Those making between those amounts and $90,000 ($180,000 for joint filers) would get a partial credit. And the break would also be partially refundable, meaning lower income families with little or no tax liability could now claim some of the credit. Estimated cost: $13.9 billion.

The stimulus package also has another education related tax break, the Pell Grant has been increased to $5,350 for 2009 and $5,550 for 2010; an increase of $500 in both cases.

Update 2/12: The $15,000 provision has been replaced by an $8,000 first-time home buyer credit, according to the Wall Street Journal.

Holy schmoly… the Senate just voted and included a $15,000 tax break to homebuyers!

It was an addition that Senate Republicans wanted in order to leave “their mark” on the economic stimulus package President Obama has called the American Recovery and Reinvestment Plan. At an estimated cost of $19 billion, the $15,000 tax credit is very much like the $7,500 tax credit given to first time homebuyers. It will be a tax credit of 10% of the value of new or existing homes, up to a $15,000 limit and everyone would be eligible, not just first-time homebuyers (defined in the previous bill as someone who hadn’t owned a home in the last three years).

From a reader:

Check out the potential big changes to this credit…increased amount to $15,00, a proposed no repayment/recapture, plus a new 5% down payment requirement. Downside is it’s not really retroactive but meant for purchases after December 31st, 2008.

Original Rules:
IRS.gov

Proposed Amendment introduced today into the economic stimulus package (two pages of Congressional record when the amendment was introduced in the Senate, February 4th, 2009):
http://frwebgate.access.gpo.gov/cgi-bin/getpage.cgi?dbname=2009_record&page=S1493&position=all
http://frwebgate.access.gpo.gov/cgi-bin/getpage.cgi?dbname=2009_record&page=S1494&position=all

Absolutely stunning… you almost have to buy a house now.