Tax Break

February 24, 2009

The Barack Obama stimulus plan has brought good tidings to the majority of the US population. However, there are still those who have doubts and are using a wait and watch policy. There is the question of who actually foots the bill for the proposed plan. When the government pays, in reality the tax payer pays. So is the tax payer only getting back what he is putting in himself?

Among the tax breaks that have been proposed under the 2009 stimulus plan is a new $8,000 tax credit for first time home buyers. This is in addition to last years $7,500 tax credit passed under the Housing and Economic Recovery Act. Hence, the tax code now has two breaks for first time home buyers. The eligibility for each credit will depend on when the home was bought.

The Obama stimulus rebate plan stipulates that the $8,000 first time home owner’s credit does not apply to those who have bought their homes between April 8, 2008 and December 31, 2008. However, the $7,500 tax credit can be availed of but will have to be paid back because it is a 15 year loan from the IRS, which is interest free. It is not a credit at all.

The Obama Stimulus plan specifies that the $8,000 tax credit can be availed of for purchases of homes made between January 1, 2009 and December 1, 2009. In this case, the $8,000 is a true credit if the home owner does not move within three years. A tax credit is undoubtedly more beneficial than a deduction. The deduction reduces the amount of income that is taxable, whereas a credit reduces the amount of tax owed. It is important to know the difference between a loan and a credit under these circumstances.

Another 2009 stimulus refund applies to the child tax credit which is refundable if the tax payer’s income is over $8,500. Under the new law this amount will be reduced to $3,000 in 2009 and 2010.
Buyers of new cars within $49,500 can get a one year deduction on local or state sales or excise taxes paid. The deduction will not include any interest on the loan. An individual with an annual adjusted income under $135,000, or $260,000 for joint returns, will qualify for this deduction under the tax rebate 2009 plan.

Any withdrawals from a 529 college savings plan will not be taxed if they are utilized for expenses that qualify for this plan. Under the new 2009 stimulus payment plan, expenses involving computers can be allowed under the 529 college savings plan.

The 2009 stimulus check aims for the exemption from federal income taxes of the first $2,400 of unemployment insurance benefits. A number of the tax breaks under this Tax rebate check plan are only applicable for the 2009 tax returns and not for filing in the current tax season.

As is evident, President Obama’s stimulus plan does provide quite a few tax breaks. The long term benefits now need to be seen.