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.]

[Update on Nov. 29, 2009: Worker, Homeownership, and Business Assistance Act of 2009 extended homebuyer tax credit both by time and by eligibility.]

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.

Worker, Homeownership, and Business Assistance Act of 2009 further extended homebuyer tax credit by time and income eligibility. The time for making a purchase was extended to April 30, 2010. For homes purchased on or after Nov. 7, 2009, the eligible income level is raised. The law also added a new $6,500 tax credit to existing homeowners who lived in their current home for at least five years out of the previous eight years.

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 – 11/6/2009 first-time homebuyer; AGI under $75k/$150k (phase out to $95k/$170k); buy a primary residence $8,000 tax credit
11/7/2009 – 4/30/2010 first-time homebuyer; AGI under $125k/$225k (phase out to $145k/$245k); buy a primary residence $8,000 tax credit
11/7/2009 – 4/30/2010 existing homeowner; AGI under $125k/$225k (phase out to $145k/$245k); buy a primary residence $6,500 tax credit

Source: CCH Tax Briefing. Full text of American Recovery and Reinvestment Act of 2009 and Worker, Homeownership, and Business Assistance 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.

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Comments

  1. Pelon says

    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?

  2. says

    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.

  3. Wetz says

    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 =)

  4. Shalgo says

    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.

  5. Pelon says

    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.

  6. Rusty Austin says

    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…

  7. says

    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.

  8. unamed says

    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)!

  9. sewall says

    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.

  10. herb says

    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.

  11. Bill Fox says

    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.

  12. says

    @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?

  13. Kevin P says

    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.

  14. Ray Regan says

    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”?

  15. says

    @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.

  16. Jacque says

    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.

  17. says

    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.

  18. Mary Shanahan says

    We looked at a home in 2007 and it was vacant still in 2009, so we purchased it in May 2009. Is the new proposal for new home buyers, (Not first home buyers) retroactive to 2009?? Can we expect some sort of tax credit? maryellen

  19. says

    Mary – The answer is no. If you don’t qualify as a “first time” home buyer, you must buy the home between Nov. 7, 2009 and April 30, 2010 to qualify for the new $6,500 tax credit.

  20. Cora says

    I have a question about the tax credit? If you already have a home, and you purchased another home in July 09, and sold it on land contract, does the person you sold it to have to live there?Can someone else live in the house? Would you still get the credit for purchasing the home?

  21. Gloria A. Dillon says

    I am trying to buy a used car that is priced at $9,999. The guy at the motor sales says you get a tax break on a new or used car. The above says only on a new car. Which is right? I know the sales tax is deductible anyway, right?

    Also, I got early Disability Social Security this year at age 60. I got a $11,000 backpay lumpsum. Will that be taxable? That will be added on to my spousal support income and small paychecks for a new job?

    Thank you. Gloria

  22. Shannon says

    I purchased a first time home in Sept. 2008 and received the $7,500 “credit” last year. Now that I learn if I would have waited a few months I could have gotten more money and not have to pay it back. This makes me sick to my stomach. Is there anything I can do???

  23. robin says

    When we bought our new car on February 10, 2009, we were told we’d get a tax credit, which gave us an incentive to buy the car. However, months later we found that the date is February 17, 2009. I remember reading back then about the tax incentive, when did the date change?

  24. christine says

    We bought a new car in January 2009 from Ford. They had great rebates and employee pricing which was ending Jan 31 2009. We bought Ford because we have owned Fords previously and they did not take bailout money. How fair is it that the tax credit started on February 17, 2009. Alot of people buy new cars in January because there is usually really good deals and the dealerships need to move inventory for the new model year coming out. Leave it to the government to screw this up too.

  25. Bill says

    This sucks! I was forced to sell my house in Georgia in Jan 2007 because I’m in the Army and had to move to Texas. Took a 10k loss on it too. Now that I bought another home in July 2009 I don’t get any tax break. Great move Government…force your boys to move and then give everybody else a tax break.

  26. Mary says

    If I buy a house in Feb. and I already own a house do I have to live in it full time to qualify for the 6500.00 tax credit

  27. Jay says

    I purchased a new home in July 2009, however I already owned a home that was purchased in 1998. This was my primary residence. After completing the renovations on my new home, I rented out my old home (that I had lived in for 12 years) and moved into the new house in November, 2009. Would I qualify for any tax credits?

  28. says

    Jay – I’m sorry you fell through the cracks and you don’t qualify for any home purchase tax credit. If you look at the table in this post, you see you are not a first-time home buyer, and therefore you don’t qualify for the $8,000 tax credit. You are a move-up home buyer, but you purchased before Nov. 7, 2009, and therefore you don’t qualify for the $6,500 tax credit. You stimulated the economy too soon. No good deeds go unpunished.

  29. g noe says

    i’m srewed bought my house sept. 2008 and should have bought a car in 2009 but waited ,is there a chance it will be started up again for 2010

  30. says

    karla – For your purchase you have to qualify as a first-time home buyer, which is defined as someone who has not owned a principal residence during the three-year period prior to the purchase. I’m sorry to say your one-month overlap killed your tax credit.

  31. Annie44 says

    I bought a house on february 28, 2008 and also bought a car on March 18,2009 and i am an first time home buyer. So do i qualify for the tax credit

  32. Sherilene D says

    Question I bought a car on Jan 29, 2010 since I heard that the sales tax credit was extended to purchase up to April 30, 2010 however when I called IRS customer service they dont have any clue on this extension can anybody shed light on this I was jsut wondering if I can add this as my additional deduction on my income tax return 2009. Advices are greatly appreciated… thanks

  33. Jerry says

    I sold my home i lived in since 1986. I sold the home in June, 2009 then purchases a new home in June 2009. Do I qualify for the 6500 dollar tax credit.

  34. says

    Jerry – You must have read the table and didn’t like what it says? The $6,500 tax credit started on Nov. 7, 2009. June 2009 is before Nov. 7, 2009. I’m sorry.

  35. carolyn says

    I’m closing on a home on April 15th 2010 . I bought a home in april of 1994 and lived in it six years, will i be eligebe for the 6500 stimulus money

  36. Tammy says

    We bought our first house March 28, 2008….just 11 days too early of the $7500 interest free loan. Do you know a website I could “follow” so I don’t miss information like this again?

  37. says

    Imagine people like me who lived within their means, didn’t get the mega mansion because i knew I couldn’t afford it, don’t qualify for any of the bailouts but will end up paying for it all anyway

  38. Kathryn says

    Are there any stimulus or tax breaks for buying a new car (first time, in past always bought used) trading in 1995. on SSI, trying to be self suffient?

  39. TFB says

    @Lisa, @Kathryn – I’m not aware of any across-the-board tax incentives for buying a car, except for targeted models of “green” cars.

  40. Jennifer says

    I purchased my first home in May 2004 in New York, lived there until August 2008, when we moved back to Virginia and lived in my parents house. The house in New York was sold in September 2008. We had a modular put up on property that was purchased in 2009 and finally closed in April 2010. The home is in my name as well as my parents name (my parents have owned their home since 1979 and still claim it as their primary residence). I pay the mortgage and taxes on the land and home. Would I or my parents qualify for the existing homeowner credit?

  41. KATHY WILLIAMS says

    I WOULD LIKE TO KNOW I BOUGHT A NEW TRUCK MARCH 6,2010 WILL I BE ABLE TO GET THE TAX CREDIT…..I HEARD THEY EXTENDED IT TO 4-10-10?

  42. Rk says

    I closed on my house on November 6th and the $6500 credit was for house purchased November 7th to April 30th. what can i do get the credit

  43. Magill says

    I purchased a 2006 Toyota in January of 2010. Was there stimulus money available for this purchase, and, if so, is it still available to be claimed?

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