Wednesday, February 11, 2009

Congress Loads Up on Tax Cuts


To get consumers spending, Congress will OK even more tax cuts. The $275 billion in breaks approved by the House in January as part of its economic stimulus package wasn't enough for senators, so they've added a few new easings to entice folks to buy houses, cars and so forth. When the dust settles, most of those add-ons will make it into the final bill that's supposed to land on President Obama's desk before end of February.

Among the Senate's goodies: a juicier credit for buying a primary home. Under the Senate proposal, the current credit of $7,500 for first-time home buyers would be expanded to 10% of the purchase price, but no more than $15,000, and would not be limited to first-time home buyers. In addition to that, unlike the current credit, the new one would not be phased out for higher-income taxpayers. The new credit also would not have to be repaid to IRS over a 15-year period, as long as the purchaser didn't turn around and sell the house within two years.

If you want to get a souped-up homebuyer's credit, don't jump the gun. The current credit, along with the repayment obligation and phase-out for upper-incomers, continues to apply until the stimulus bill is signed into law. Once it's in effect, taxpayers would have 12 months to buy a home before the credit expires. Another reason to wait: Because of the provision's $35-billion price tag, it's very possible that the break will be scaled down when the two chambers meet to hammer out a final version of the bill. Conferees could add any of several limitations: phasing out the break for high-incomers, limiting it to first-time homebuyers or reducing the maximum credit amount to $10,000.

Are you in the market to buy a car instead? You're in luck, too. The Senate is proposing to boost sagging auto sales by allowing interest paid on loans to buy autos or light trucks to be deductible for 2009, even if the purchaser doesn't itemize deductions. This would apply to vehicles bought after Nov. 12, 2008, and before Jan. 1, 2010, although the House may insist on moving the start date to 2009. The benefit would begin to phase out for married couples with adjusted gross incomes over $250,000 and single filers with AGIs over $125,000. The Senate also proposes to give car buyers an above-the-line deduction for any state sales tax or excise taxes that were paid on the vehicles. The income phase-out is the same for this break.

Relief from the alternative minimum tax (AMT) is another Senate add-on. To keep millions more filers off the AMT rolls in 2009, the Senate would increase the minimum tax exemptions to $70,950 for joint filers and $46,700 for single taxpayers. Right now, the 2009 exemptions are at pre-2001 levels: $45,000 for married couples and $33,750 for singles. Congress won't let that stand.

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