Tax Breaks In Stimulus Bill for Buying a Home Or a New Car
[Update on Feb. 18, 2009: American Recovery and Reinvestment Act of 2009 was signed into law on Feb. 17, 2009. This post is updated with the latest info from what's in the law. Please also read the follow-up post for other tax provisions in this law.]
1. $8,000 tax credit for buying a home. The new stimulus law will give up to $8,000 tax credit to first-time homebuyers. Unlike the previous $7,500 tax credit for first-time homebuyers, which has to be paid back in 15 years, this is a true tax credit as long as you hold the home for 3 years. The credit is still limited to people with an AGI under $75k (single) or $150k (married filing jointly). This tax credit is refundable, which means it's not limited to your federal income tax liability. The qualifying purchase dates are between Jan. 1, 2009 and Nov. 30, 2009. So it's not retroactive for purchases in 2008.
| Bought When? | By Whom? | Tax Break |
| Before 4/9/2008 | anybody | None |
| 4/9/2008 – 12/31/2008 | first-time homebuyer; AGI under $75k/$150k (phase out to $95k/$170k); buy a primary residence | $7,500 interest-free loan over 15 years |
| 1/1/2009 – 11/30/2009 | first-time homebuyer; AGI under $75k/$150k (phase out to $95k/$170k); buy a primary residence | $8,000 tax credit |
Source: CCH Tax Briefing. Full text of American Recovery and Reinvestment Act of 2009.
2. Tax deduction for buying a new car. The stimulus law also gives a tax deduction for sales tax if you buy a new car (not a used car). To qualify for the tax deductions, you must buy a new car under $49,500 between the date the law is signed and 12/31/2009. There's also an AGI limit of $125k (single) or $250k (married filing jointly), and a phase-out range of $10k. You can take advantage of this whether you itemize your deductions or use the standard deduction.
| Bought When? | By Whom? | Tax Break |
| Before 2/17/2009 | anybody | None |
| 2/17/2009 – 12/31/2009 | AGI under $125k/$250k (phase out to $135k/$260k); buy a new car under $49,500 | tax deduction for sales tax |
Source: CCH Tax Briefing. Full text of American Recovery and Reinvestment Act of 2009.
Patience is greatly rewarded by our government. If you bought your home or car too soon, you get no tax break or you only get a small break. If you waited, not only you get a better price, you also get a much bigger tax break. It makes you wonder if even bigger tax breaks are coming down the road. If I were in the market for a home or a new car, I would not proceed until I know I won't miss out on a significant tax break.
Software picked, likely related posts:
- Tax Credit for Buying a Hybrid or Diesel Car
- Tax Cuts in Fiscal Stimulus Package
- Refundable Tax Credit and Non-Refundable Tax Credit
Comments
20 Comments on Tax Breaks In Stimulus Bill for Buying a Home Or a New Car
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Pelon on February 5, 2009 |
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Wetz on February 5, 2009 |
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Shalgo on February 5, 2009 |
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Pelon on February 5, 2009 |
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Rusty Austin on February 11, 2009 |
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Bible Money Matters on February 21, 2009 |
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unamed on March 2, 2009 |
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sewall on March 12, 2009 |
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herb on March 16, 2009 |
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Bill Fox on April 26, 2009 |
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Gordon Gecko on June 5, 2009 |
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Kevin P on June 28, 2009 |
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Ray Regan on July 7, 2009 |
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Jacque on July 26, 2009 |
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James W on October 27, 2009 |
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Charles Jones on November 11, 2009 |
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Your advice (which is good) highlights the problem of government intervention in the free market. I may have the funds and the need to purchase a house now, but doing so could cause me to lose out on some future government stimulus payment. The smart thing to do is to wait. Is that really what we want?
Imagine the buyer's remorse from people who bought a house before April 2008. They paid a high price and got nothing. Imagine the buyer's remorse from people who took the bait from the government and bought a house in December 2008. Yes they got an interest-free loan. But if they waited, they would get a real tax credit twice the size. Now, if you are in the market for a home, do you want to take the bait now or do you wait? Having seen how people got burned before, the rational person would wait. Wait for sure there is not another $30,000 or $50,000 tax credit coming. Wait for sure the housing market really hits the bottom. While they wait, the price keeps going down, which creates pressure for bigger tax breaks. People who waited are proven right again. That's how all these got started. If the government really wants to give the right incentive, they have to say the tax breaks will not be extended or enhanced no matter what. Otherwise people would just wait. I know I would.
If the bill is passed, it should be retroactive and should supercede the previous $7.5K for those who bought last year. Sort of like a price match gurantee if price goes lower =)
What is the rationale for the November 12th cutoff for the automobile credit? It is not like passing the bill now will affect consumer behavior last November or December. As someone who bought a car on October 31st, I am rather annoyed.
I missed both of the credits to some extent. I purchased a home on August 1, 2008 and a car on August 2, 2008. At least I qualified for the $7,500 "credit" that has to be repaid. The good thing is that it doesn't have to be repaid if I sell the home at a loss. That brings up an interesting situation. I bought the house for about $80k. If I sell the house for $72,500, I don't have to repay the credit, and I won't lose any out of pocket cash. If I can't sell the home for $81k, the logical choice is to sell it for $72,500. Even if the market price is $79k, selling it at $72,500 makes the most sense because it will reduce the commission paid to the real estate agent. Since the likelihood of selling the home for more than I paid for it is pretty low, the government credit has pretty much resulted in a 10% drop in the local property values. I don't think that was what they were trying to accomplish when they approved the credit.
On the other hand, you could get hit by a garbage truck and die tomorrow, then you will never have had a house to enjoy…
Honestly the only one of these that might entice me a little bit is the home buyer tax credit. If I was in the market, the fact that the money doesn't have to be paid back, would be pretty nice. Never mind the fact that I think the stimulus bill as a whole is a huge boondoggle and repayment for political favors.
As far as the new car tax credit – i'll never buy a new car anyway. I'll just continue buying 2-3 year old used cars with low miles, for thousands less. This tax credit doesn't make buying that new car any more attractive since I'm saving many thousands by buying used.
In other words to all those that get the a 7,500 "credit" that has to be paid back, eventually will end up paying for the 8,000 credit someone else gets in 09, it almost ends up breaking even! WOW we have a great government- (not)!
Economic theory of price subsidies (and common sense) suggests that the credit will not go entirely to the buyer. It looks to the buyer like he's getting the full discount, but the seller knows about it and so it is priced in.
As for waiting on government policy. Not so fast! It can go either way. If you can read the winds of policy and game them you can benefit. I wouldn't count on it.
Imagine the buyer's remorse of those of us who did not receive any Road Home or other monies (including windstorm insurance) post Katrina, but who bought homes in the area in 2006 and restored them anyway! Now this…yep, I feel really stupid.
Since when did 2009 begin on February 16th. I bought a new truck 2 weeks prior to that because I had heard that a new car incentive was to be included in the stimulus package. To say I am annoyed is an understatement.
Is there a set deduction for automobile purchases (i.e. a percentage of the paid price)?
@Gordon – Not that I know of. Sales tax is usually a percentage of the price paid. Or is there no sales tax in your state?
Typical government doing nothing and convincing Joe Public otherwise. I have owned a home for a while so the home credit means nothing to me. But look at the stimulus plan for buying a new car closely. If you buy a car between their specified dates and you meet their criteria you get a tax deduction for the sales tax you paid. HELLO! You already get a tax deduction for all sales taxes you pay during the year. Sounds neat and complicated but is typical government, a whole lot of nothing.
When do retirees receive their $250 one time payment under the Personal Stimulus Benefits?
Also, how does a qualifying New Car Buyer take the :sales tax deduction"?
@Ray – According to the Social Security Administration, the $250 one-time payments were sent in the month of May, 2009. If you think you are eligible but you haven't received it, contact the Social Security Administration. For the new car sales tax deduction, I imagine the tax form for 2009 tax year will have a new line for it. You claim the deduction when you file your 2009 tax return in 2010.
We purchased a home in April 2009 but it's not the first home we bought so that means we are not eligible for the stimulas check. How fair is that. We had to sell our other house because the taxes where too high. We rented for 2 years then decided to buy again. I think it should be for anyone who bought a home in 2009, just like it is for those that bought a car.
If I purchased two cars (under $50K), would both cars be qualified for the tax credits?
James W – It's a tax deduction for sales tax paid, not a tax credit, but yes, both cars qualify if they are bought within the applicable dates.
If I am not a first time home buyer, purchased my home in Nov. 2007, will I qualify for any tax credit?
thanks
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