Five Additional Stimulus Plan Tax Credits

Do you know all the key tax credits and deductions from the latest stimulus plan? If you don’t, you are in danger of doing what one of my tax clients did last year – he purchased all new windows for his home, thinking that he would be able to get a credit for them. However, he would have been able to get a credit in 2007 and a credit in 2009 (as long as he followed certain guidelines), but Congress did not allow the credit in 2008. So, he spent $8,000 in a year that it had no taxable benefit to him.

Previously, I discussed the Making Work Pay Credit and some of the benefits for the unemployed, and today I’ll talk about the rest of the main provisions in the bill.

• First-time Homebuyer Credit – Most people know about this credit, but it can get confusing because there was a credit available on your 2008 taxes for $7,500 where the buyer has to pay the credit back over 15 years ($500 a year). However, in the latest stimulus plan, it has been changed to an $8,000 refundable tax credit (10% of the purchase price, up to $8,000) for first-time homebuyers who purchase a home between 1/1/09 and 12/1/09. The $8,000 does not have to be paid back. A first-time home buyer is someone who has not owned a principal residence during the three-year period prior to the purchase, and the credit starts phasing out at $75,000 ($150,000 for a joint return).

• Nonbusiness Energy Property Credit – You can get a credit of 30% of the cost, up to $1500 for certain energy efficient improvements that you make to your house in 2009 or 2010. Not all improvements qualify; it usually only includes products at the highest efficiency levels. See this article for more information.

• American Opportunity Tax Credit -This credit is similar to the Hope Credit, except that it can taken during any of the 4 years of study (instead of just the first two). During 2009 and 2010, the Hope Credit has been expanded to up to $2500, and 40% of it is refundable (meaning available for lower-income taxpayers who may not have qualified in the past). The credit phases out at $80,000 ($160,000 for joint filers).

• Section 529 plan distributions – Congress has expanded the definition of qualified higher education expenses to include computer and related equipment to be used for college. In 2009 and 2010, you will be able to use your 529 plan to purchase computers (and you won’t pay tax on your withdrawal).

• Vehicle Purchase – If you purchase a new vehicle after 2/16/09 and before 2010, you will be eligible for a tax deduction for any state and local sales tax that you paid on the new vehicle costing up to $49,500. Fortunately, you can claim it even if you don’t itemize on your 2009 return. The deduction begins phasing out at $125,000 ($250,000 for joint filers).

Do you plan on taking advantage of any of these new tax credit this year? Do you think these will make doing your taxes next year more complicated? For more frugal ideas, please visit Lynnae @ Being Frugal.