Make Work Pay Stimulus Tax Credit

PaycheckI’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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American Opportunity Tax Credit Details

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.


$15,000 Homebuyer Tax Break

Update 2/12: The $15,000 provision has been replaced by an $8,000 first-time home buyer credit, according to the Wall Street Journal.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

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):

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


Education Tax Credits: Hope & Lifetime Learning Credits

Ecstatic GraduateWith the economic slowdown, a lot of people have been thinking about going back to school yet many of them, me and some of my friends included, aren’t aware of the available education tax credits. When I was in college, I was a dependent and my parents claimed the credits. Since graduating, I have been going to graduate school on my employer’s dime so I never had any qualified educational expenses to claim. But if I want to go back to school or take some special training, it definitely benefits me to brush up on the education tax credits.

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Maryland Homestead Tax Credit Application

This article applies only to Maryland residents, though other states may institute policies such as this one as property tax revenues start to fall because of the housing slump.

In Maryland, we have a Homestead Tax Credit that “limits the amount of assessment increase on which an eligible resident homeowner actually pays county, municipal and State property taxes each year.” This protects people from huge spikes in property taxes every three year assessment cycle. When we bought our home three years ago, we didn’t immediately begin paying taxes on our assessed value (the purchase price). The assessment value gets slowly phased in, 10% for State assessments each year, until it reaches the total assessed value.

Two years ago, the Maryland General Assembly enacted legislation that would require homeowners to submit a one-time application for the Homestead Tax Credit. This checks that each family receiving the Homestead Tax Credit was actually supposed to receive it. You’re supposed to only receive it once, on your principal residence, per person or married couple. They check primary residence by confirming income tax and motor vehicle record in the state. This is to prevent people from claiming the credit on second homes or rental properties, for which this law was never designed for.

Well, our three year assessment cycle came due and we had to re-apply. The process took two minutes and will save me the county and state taxes on $108,943 of my assessment. Translate that into taxes and you’re talking close to $3,000 a year! I don’t think there’s a single action in the world that has an ROI like that!

Maryland produced this straightforward Homestead Tax Credit FAQ but it’s pretty clearly laid out in the assessment notice they send you. You don’t need to apply until they send you your assessment but you can do everything via their online form. You will need the paper application form so you can get your Real Property Account # and an Access Number.

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2009 Federal Energy Tax Credits

Energy Star LogoWhile many parts of of the Emergency Economic Stabilization Act of 2008 (or what some call the $700 billion bailout) probably upset you, one aspect that did make me smile was the reintroduction of energy tax credits. (You thought I was going to point out the extension to the provision that allowed racetracks to depreciate their tracks over 7 years rather than 15, huh?) The federal energy tax credit for energy efficiency was a benefit I took advantage of two years ago whenever we replaced our aging windows and sliding doors. While it’s great that the credits have returned, one unfortunate aspect is that the $500 credit limit will apply to 2006, 2007, and 2009. We won’t be able to take advantage again.

With home improvements, you have to place the home improvement in service after January 1st, 2009 and on or before December 31st, 2009. If you do anything between now and December 31st, 2008, you’ll be out of luck. I would review the Energy Star chart for the specifics of each improvement, how much you can get from the credit, before making any decisions but I’ll highlight the major ones.

The biggest bang for your buck is in the form of replacement windows and, to a certain extent, doors. For windows and skylights, you can get a credit for 10% of the cost, up to $200, for Energy Star qualified or IECC meeting windows. Labor is not included. For exterior doors, if they meet IECC standards, you can get a credit for 10% of the cost, up to $500.

Insulation is another good way to reduce energy costs without costing you a lot of money and they come with a 10% credit, up to $500. The only requirement is that they must be expected to last 5 years or have a 2 year warranty. One great place to check your insulation levels is in the attic, it’s important to have at least 12 inches of insulation. If you can see your joists, you need more insulation.

Finally, there are a few home improvements that are afforded energy credits. Compliant HVAC systems and water heaters can get a $300 credit. If you happen to live in an area with plenty of sun, solar systems can get 30% off, up to $2000 (there is no $2000 cap if is it’s a Photovoltaic system!), and are not subject to the $500 credit cap. While the credits probably aren’t enough to get you to install it, they are nice if you’ve already made the decision.


2009 Federal Income Tax Brackets (Official IRS Tax Rates)

9/16/09: The inflation data for 2009 have been released, so you can find the 2010 income tax brackets.

2/26/09: These IRS tax brackets are official.

The Labor Department released inflation data yesterday and the Wall Street Journal had three tax experts estimate how all the inflation-pegged tax figures would change based on those numbers. Many tax numbers, like the brackets, exemptions, standard deductions, etc., are pegged to inflation so knowing the Labor Department figures can give you huge insight into how those numbers will move. The three experts are George Jones, senior federal tax analyst at CCH; William Massey, senior tax analyst for the tax & accounting business of Thomson Reuters; and Prof. James C. Young, professor of accountancy at Northern Illinois University. The Wall Street Journal does this every year and, for as long as I can remember, they’re often it pretty spot on. Based on their calculations, a bunch of inflation-pegged tax numbers are going up.

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Slight Misunderstanding of Marginal Tax Brackets

Reader Ann asked the following question on my post about the 2008 Federal Income Tax Brackets:

Jim ~

My husband has just been offered a salaried position of which he is excited yet somewhat reluctant about. The increase in salary would put us “over the edge,” so to speak, into the 25% tax bracket. His position probably doesn’t have much more room for increased income. We are not currently in a position to owe significantly more tax. In addition, we are quickly loosing our child deduction as they are becoming “independent.” Advice?

Here was my reply:

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