By Shelia M. Whorton, MPA
The American Reinvention and Recovery Act, provides numerous tax credits to help stimulate our economy. Among these are tax breaks for the purchase of a new car, tax credits for the purchase of a new home, and the Making Work Pay Tax Credit.
Taxpayers who purchase a new car, light truck, motor home, and motorcycle after February 17, 2009, but before January 1, 2010, may be entitled to deduct state and local sales and excise tax when preparing next year’s tax return. The deduction is limited to taxes paid on up to $49,500 of the purchase of a qualified vehicle and is phased out for individual taxpayers whose modified adjusted gross income is between $125,000 and $135,000. For taxpayers who file joint returns the phase-out is between $250,000 and $260,000. Taxpayers do not have to itemize to qualify for the deduction. However, the deduction cannot be taken on 2008 tax returns
The provisions of the American Reinvestment and Recovery Act (ARRA) will not have an impact on most taxpayers preparing their 2008 tax return. However, in some instances taxpayers have the option of preparing an amended return to maximize the provisions.
Taxpayers who purchase a home before December 1, 2009 may qualify for a First-time Homebuyer’s Credit of up to $8,000.00 if filing a joint return or $4,000.00 for individual filers. Unlike the 2008 first time buyer’s credit of $7,500.00, this expanded credit does not have to be repaid over fifteen years because it is not a loan. . To be considered a first-time homebuyer, the taxpayer must not have owned a primary residence in three years. To claim the credit, the sale of the home must be final. Taxpayers who filed their tax return prior to purchasing a home may complete an amended return to receive the credit this year or wait under next year to claim the credit on their 2009 tax return. Taxpayers who haven’t filed their 2008 return, but are purchasing a home, may request a six-month extension to October 16th. The amount of the credit phases-out for individuals whose adjusted gross income is more than$75,000.00 or $150,000.00 for married couples filing joint returns.
The Making Work Pay Tax Credit will provide a refundable credit of $400.00 for individuals and $800.00 for married couples filing joint returns. This credit is calculated at a rate of 6.2% of earned income. The credit will be handled through employers during the spring of this year. People who receive a paycheck and are subject to withholdings will see an increase in their take home pay. Taxpayers who do not have taxes withheld by an employer may claim the credit on their 2009 tax return.
In addition to the above listed provisions, the ARRA also provides relief to businesses. A major component for small business is the Net Operating Loss Carryback. This provision allows a small business with net operating loss in 2008 to offset the loss against income earned in up to five years. Typically, a net operating loss (NOL) can be only carried for two years.
For more information about taxes and American Recovery And Reinvestment Act visit the IRS Web site at www.irs.gov.
Shelia M. Hester-Whorton