By Michelle Singletary
Thursday, February 26, 2009
I hosted an online discussion recently and one of the participants was particularly perturbed because he had purchased a new car on President's Day, Feb. 16.
Had he waited just one day, he would have qualified for a tax break that allows new car buyers to deduct state, local sales and excise taxes on their federal returns.
The deduction is available only for taxpayers who purchased new vehicles on or after Feb. 17 -- when President Barack Obama signed the American Recovery and Reinvestment Act of 2009, better known as the economic stimulus plan.
"I feel duped," the person wrote during the chat. "The reason I decided on new versus used was because of the tax credit. I thought I would qualify . . . as the dealer told me. I would have waited a day to save the $2,000."
I don't think so. It's not the dealer's fault this person missed out on the credit. The dealer may have believed the buyer would qualify for the tax break. And the buyer would have, had Obama signed the bill by President's Day as was originally planned. But he didn't.
There's a lesson for this car buyer and a lot of people confused about various things in the stimulus plan. You need to separate fact from hearsay when it comes to the law. Here are some questions I've received from readers doing just that:
QWhat are the exact dates covered for the tax deduction for sales taxes on new cars bought in 2009?
AThe deduction for state, local sales and excise taxes on new cars, light trucks, motor homes and motorcycles is allowed from Feb. 17 through Dec. 31, 2009. The deduction is phased out for joint filers with modified adjusted gross income of $250,000 to $260,000. For other taxpayers, it's phased out if your modified adjusted gross income is $125,000 to $135,000.
I am about to buy a new car that I have negotiated from $56,410 to $49,900. Do I have to pay $49,500 or below for a vehicle to get the car sales tax deduction?
The deduction is limited to the tax on up to $49,500 of the purchase price of an eligible motor vehicle.
If you buy your home in 2009, can you take the first-time home buyer credit on either your 2008 tax return or your 2009 tax return?
If you purchase a principal residence on or after Jan. 1, 2009, and before Dec. 1, 2009, you can take the first-time home buyer's tax credit of up to $8,000 either on your 2008 return or next year on your 2009 tax return. The credit is equal to 10 percent of the home purchase price, up to the $8,000 limit.
As explained well by the National Association of Realtors (http://www.realtor.org), there are a few filing options for first-time home buyers eligible for the credit this year:
-- If you purchase your home between Jan. 1, 2009, and April 15, 2009, you can claim the $8,000 credit on your 2008 return, due by April 15.
-- If are planning to close on your home after April 15 but by Oct. 15, you can file for an extension and just wait until the October tax deadline to file your 2008 tax return to claim the credit. You have up to three years to file an amended return.
-- If you have already filed your 2008 return and qualify for the $8,000 credit but want to take it this year, you can file an amended return on Form 1040X, which is available at http://www.irs.gov.
-- You could also wait and take the credit on your 2009 tax return or adjust your income tax withholdings now to get the benefit of the credit before filing your return.
"The key is the date you purchased the home, not the year for which you are claiming the credit," said Eric Smith, a spokesman for the IRS.
The first-time homebuyer credit can be claimed on IRS Form 5405, which also provides additional information about the credit.
What are the income limits for the first-time home buyer credit?
You are allowed the full amount of the credit (based on your home's purchase price) if your modified adjusted gross income is $75,000 or less ($150,000 or less if married filing jointly). The credit begins phasing out when your modified adjusted gross income exceeds $75,000 ($150,000 if married filing jointly). The credit is eliminated at $95,000 ($170,000 if married filing jointly).
Was there anything in the stimulus plan to allow penalty-free or tax-free withdrawals from a 401(k)?
Sorry, the American Recovery and Reinvestment Act does not provide tax relief for early withdrawals from 401(k) or IRA distributions as some financially weary people had hoped.
There are a lot of tax breaks in the stimulus plan. Keep checking the IRS Web site for the latest updates about the law. Or seek the advice of a qualified tax preparer or download the latest updates for tax software before making a financial decision based on what you think the new law contains. To do otherwise could cost you big money.
-- On the air: Michelle Singletary discusses personal finance Tuesdays on NPR's "Day to Day" program and at http://www.npr.org.
-- By mail: Readers can write to her at The Washington Post, 1150 15th St. NW, Washington, D.C. 20071.
-- By e-mail: email@example.com.
Comments and questions are welcome, but because of the volume of mail, personal responses are not always possible. Please note that comments or questions may be used in a future column, with the writer's name, unless a specific request to do otherwise is indicated.