How Much Money Can the New Stimulus Act Save One Family in 2009

Economic Stimulus

After President Obama signed the new stimulus act into law Feb. 17, a long-time friend, Brian, called me.

He wanted to know, “What’s the maximum I can get out of those new tax breaks on my 2009 tax return?”

I thought it was an intriguing question.  Being a CPA, I can figure out tax law and add up the numbers. Here are the results. He can save $13,790 in taxes on his 2009 return!

Now remember, this isn’t for everybody. Here’s Brian’s “ideal” situation. He’s married, has one child in college, and his adjusted gross income (taxable income prior to subtracting exemptions and standard or itemized deductions) is less than $150,000.  And here are the details broken down by credit and deduction.

1) Making Work Pay: This is a new $400 credit ($800 if married and filing jointly) that the taxpayer receives by reduced payroll withholding.  Since Brian will be filing joint for 2009, he’ll be getting $800 tax savings during the year through an increase in each paycheck for 2009.  So that’s $800 savings.

2) First-time Homebuyer’s credit:  Brian and his wife haven’t owned a home in more than 3 years.  Why? When they moved from the Midwest to San Diego, they couldn’t afford a house. Now with the drop in prices, they could buy that new home in 2009. Yeah! Since it’s in San Diego, the price will definitely be more than $80,000. Ka Ching… $8,000 credit. For more details see Taking First-Time Homebuyer Credit.

3) New car sales-tax deduction:  Since car sales are way down and so are car prices, Brian could decide it’s time to buy a new car.  Since he’s always wanted a luxury car, he’d use the excuse that he can get the maximum deduction for sales tax on a car priced up to $49,500.   That‘s a lot of money for a car but he does get a tax savings of $990.  (Price $49,500 times 7.775% (San Diego sales tax) = $3,836 deduction. Since his marginal tax rate is 25%, his tax saving is $990 (3,836 times 25%).   Let’s not talk about what his wife would say about that not so big tax savings for a very big car.

4) Energy saving tax breaks: If Brian’s wife has been complaining about how chilly their family room and master bedrooms are (yes, it does get a tad chilly in San Diego!), now is the time to buy new energy-saving sliding-glass doors for those rooms. If the price of each door is $2,500, which would meet the maximum credit of $1,500 ($5,000 times 30%).

5) Bigger tax break on college costs: Their child is in her 4th year of college and her tuition is $10,000 and wouldn’t have qualified for the Hope credit under old law. Since the old HOPE credit has been extended and expanded (and now called American Opportunity credit), they’ll get the maximum credit of $2,500.

Here’s the summary:

Making Work Pay Credit            $    800

Homebuyer Credit                     $ 8,000

New car deduction- tax savings  $    990

Energy credit (new doors)           $ 1,500

College tuition credit                  $ 2,500

TOTAL                                     $13,790

For details on the new tax act, check out  2009 Stimulus Package: What’s In It For You, and When.

Comments (38) Leave your comment

  1. This is an ideal situation, but the tax savings will come from taking on more debt, which is not really the way to financial freedom, is it now? It is clear the incentives are geared towards fuelling an economy with its mantra being SPEND SPEND SPEND, CONSUME CONSUME CONSUME. Fiscal sense doesn’t come into the equation too much in this instance.

    What else can one say?

    Regards

    Monica

  2. I like to know about union dues I hear you can deduct but I am always told no. Does anyone know what we can deduct anymore. I like what Larry L had to say lets not pay taxes and see how quick they realize that they cant take advantage of us hardworking people and even the ones who have earned the right to receive pensions and social security why do they have to get scr—ed.

  3. For all of you wondering…the energy tax cut is a credit not a rebate…so if you did not owe the gov money…forget about getting any back. THIS only applies IF YOU owe the gov…up to 1500 would be forgiven…so all of us who THOUGHT we would get a credit and recoup monies spent…not happening…..Finally got IRS to explain…seems contractors etc are feeding us all wrong info. We only made the upgrades based on getting 1500 of that back…now wondering how we are to pay our realestate taxes after investing that along with other monies for those energy saving projects…..BEWARE!!!!!!!!!!

  4. If yourspouse is disabled can you carry this person and what would you need for proof of income if he is receiving retirement and social security?

  5. You have got to be kidding me!! Take on $500,000 in debt so that you can save $13,900 on your taxes? I’ll concede, if this is the right time for you to buy a first home – that credit makes sense. But no one – I mean no one – needs to buy a $50,000 car to save $1,000 on their taxes. This kind of thinking is what has put America in this position. Buy what you can afford and only that. Pay cash. Live within your means and save for the future. Stay away from credit and debt and your life will be less stressful and more productive.

  6. Why is it that those who benefited the most are willing to do the least? Something had to be done, or we could wind up like Japan, with a recession that lasted ten years. To me the risk was necessary, for the out come would be too horrible to contemplate. Having served in the military, and having had friends die for this country, most of these complaints just ring hollow.

  7. Send government a wake-up stimulus
    All of us need to stop paying taxes. What could they do? Put us all in jail? Then who would support their 6 & 7 figure income?Once government learns we are not going to support their wasteful habits things could change.

  8. The stimulus package only helps some that others are paying for. i am retired withs ss and what iras i had are being taxed first even thou they were after taxed. Also, increase in city, county, federal taxes and in utility companies. trying to find work and not counted because not drawing unemployment. over qualified another term for too old.

  9. Stimulus, schmimulus. Borrowing money from foreign governments (insert China) and printing more money does not, will not, can not possibly have a long term positive effect on the financial health of the country. If the effect lasts 3.5 years, then the democrat party might get re-elected. Perhaps that’s the objective.

  10. The talk show host that was posing as a CNN reporter was so irate tht the citizen did not realize he was getting $4oo from the government, hello, I just paid $9000 in income taxes plus SS, Medicare, State, City, County, Local and school taxes! Plus, that 400 was mine to start with the the government TOOK from me without my permission! HELLO!! Get a clue government, I want the fair tax or the choice of where I spend my mandated amounts!

  11. I’m tiring of hearing about ‘Stimulus’ issues. The way to solve our ecomonic problems isn’t to spend our way out of them, or to use credit. We need to educate people on what the use of credit really means, and on what their taxes are for. Enough slamming of the ‘rich’ for not paying enough – many middle and lower class don’t pay a dime. I know because I don’t – retired, disabled, one daughter in college. But no mortgage and no credit card debts makes it work, and I’m not complaining about my lifestyle of anything. Not wealthy, just happy and able to do OK on SSA and what I SAVED before I was disabled.
    Let’s stimulate LONG TERM recovery, not short term political posturing.

  12. How the package works, see, is the government takes 3 walnut shells, see, and puts a pea under 1 shell, see, and stirs them around, then the taxpayer gets to choose which one has the pea, see, but that pea is not really there, see, as congress has already taken it, and your money. Now someone has to be stimulated to pay it all back.

  13. Hello!!! OB, I’m retired as are millions of Americans. Where is our stimulus package.
    Our costs for food and everything else has gone up.
    Give me a break-What do I have to do to make something Green?
    Your right, Paint it.

  14. Can you tell me directly what stimulus money will be available for me and my wife, filing jointly. We are 73, and 72 years old, own our “new” townhome and two used cars, 6 & 8 years old.

  15. I think we shouldn’t be borrowing to buying anything that depreciates. Save up the money and buy used cars with cash. Buy furniture as you’ve got the cash saved. Pay the credit card bills off every month. I’ve been doing this for the last 30 years and it works great. I bought my first home two months before the magic April 9th. Oh well!

  16. “Once the Nation’s finances get squared away, we will all benefit in the future.”
    Not trying to pick a fight, but by that time, we’ll all be dead and our grandchildren will still be paying for this stimulus.

  17. No stimulus package can be retroactive enough to satisfy everyone. The idea here is to help as many as possible, today. Once the Nation’s finances get squared away, we will all benefit in the future. We can’t correct ALL of the past: how far back would we have to go? Quit your Republican bitching about not getting your share of the pot and be thankful that at least some people will get help, which in the long run will help all of us.

  18. Dear TurboTaxLee-
    I appreciate your post and anecdotal information. Although the stimulus package does not help me (I’m divorced, no longer a homeowner, can’t claim any education payments since my college-attending daughter lives with her mom, and have a 3-year-old car)your examples do help clarify, which is the point of your article. I won’t shoot the messenger, or whine about the people it does help (like married parents and first-time homebuyers). I also won’t suggest who should get or deserves money. Sometimes we just need to help ourselves. Thank you!

  19. Ediots:
    Even though the tax tables do not change (already printed and distributed), when you fill out your tax forms at the end of the year, you will find an automatic taxes owed reduction of $400/$800 on the line just before the taxes due line. That is what the payroll reduction is geared to. Use your head for something besides a ball/truck cap on backwards (or is it your head that is on backwards?).

  20. I agree with John Hyder’s post ealier; retired, small pension, collecting SS no children in college… I found that my stimulas/rebate was only $300 because I receive social security!
    My living expenses are going up with inflation but I don’t get to stimulate the economy as much as others. Those receiving Social Security are penalized.

  21. Bend O : Try getting a small business on the side anything you like doing …this way you will have lots to write off (cell ph & bills, gas, mileage, office space, supplies, parking, stamps etc)on your taxes and get money back. Also dont throw anything of use in the trash…write it off by taking it to goodwill…increase your exemtions thru the year …then at tax time put it back to file “head of household” . Use turbo tax. These are the things I do and I always get large refunds back. Also, if you attend church your milage to and from, your cash giving and even your time (by way of milage) can be written off under charity-this to increases your return.
    Mickee from Houston

  22. What if your a single mom, who was finally able to buy a home (before April 8, 2008) and only barely makes enough to get by each month? (still working 2 jobs)
    One child is fully grown, and the other 2 are nowhere near college. That little bit of extra money in my check each month doesn’t even buy a tank of gas! That’s the only stimulus I’m eligible for right now. I would love to go back to school, but who has time? Why was that first time homebuyer credit only available if you purchased after April 8th, 2008 anyway? 4 days back and I could’ve paid off all my credit and had a little extra money each month for the kids.

  23. Well, I’ve worked and paind taxes for over 40 years in the aerospace business, and still not quite at the 6 figure level. I’m single (divorced) and own a small house that I bought last year. And no, I didn’t get the first time buyer’s BS then either. Had to buy to get some tax break! So I read through this, and again, I notice the only stimulus I’ll get is that same one I get every year as the government has me bent over the table. What a crock…………..

  24. Another thing I think is missing – help with the Medical Insurance. We have a $2000 deductible, but at least we have insurance. We are retired also so nothing in the current package helps us. Like so many others we replaced windows before we retired.

  25. Question, why would you replace windows in a home you rent? Unless you were referring to the home that was supposedly purchased. It doesn’t make sense.

  26. After filing my father-in-laws taxes, I was notified that the $300.00 stimulus payment was not properly stated in line 70 of his 1040. His refund was reduced by the 300.00 and an additional 20.00. I am confused because I read that the stimulus payments were not taxed, but he was penalized for it.
    This also happened to a collegue’s mother who wound up having her refunds reduced by $900.00 (for her 600.00 payment on Fed and 300 on state). This seems like a de-stimulus program for seniors on a fixed income. There should be a way to opt out of these short term “loans” by the government with hidden interest.

  27. Here’s the fastest way to fix this economy.
    1. Give all homeowners an account of $500,000. They can draw on this account to pay off mortgages, credit card debt, and buy a new car.
    2. require them to close all credit accounts before any of the money can be disbursed.
    3. Allow them $10,000 tax free, after all of their debt is paid off. This to use as they want.
    Housing market fixed.
    Banking foreclosures fixed.
    Autoworkers back to work as are there suppliers.
    Homebuilders back to work building houses.
    business is booming as people are working and spending.
    Now put some interest guidelines on the banking industry, such as lending rates are low until you are late or miss a payment.
    No more sub prime lending to screw anyone up.

  28. OK…
    I know that the decrease in payroll withholding seems like a “tax break”, but it really isn’t one, at all. It is simply less money being taken out each week. Your tax, in the end, will not change. The tax tables for the 2009 tax year are not changing. The only thing changing is the amount withheld from a person’s paycheck each week. Please be careful to notice the difference in your paychecks could mean that a person teetering on paying in or getting a refund for 2008 could, very easily, pay in for 2009.
    Please check it out, and protect yourselves for next year!!!

  29. Your post encourages people to borrow money that they likely can’t really afford. That’s the root cause of our current problem. If Brian has to borrow money to purchase the house, the car or the sliding glass door you must deduct the interest on those loans. This sounds like buying something you don’t really need that’s on sale and pretending that you get a savings.

  30. There is really not to much in the stimulus package that would stimulate retirees with small pensions and Social Security to go out and spend. If there are things that we are overlooking you might bring it to our attention in a newsletter

  31. Would be nice to have a stimulus package that benefited people. Not a first time home buyer, my car is only 2 years old, In preparation for retirment we have replaced windows, furnace, ac with energy efficient items. And, since I am near retirement I won’t be spending any money on college costs. My husband and I paid for every penny of our college education by working a second job to pay off our student loans.
    The stimulus package is not very stimulating for most.

  32. okay, what if you rent and don’t own your home, all kids have left the nest so you are no longer head of household, and you teach school. how does the stimulus package help?

  33. The only bene I may get as a retiree is $400. I can’t even afford a new car, the payments would eat up all of my pension. I bought new energy efficient windows when I retired 5 years ago. This stimulus package does very little for us senior citizens. We already paid our dues and are still getting screwed by local, state, and federal government.

  34. You are absolutley right Richard!
    This will only help a small minority of people and will not stimulate anything in my opinion.
    Why not bail out the hardworking individuals that pay for most of the taxes or give them a loan at 5% instead of the 30% the credit card companies are demanding to help them get back on track.

  35. Since I only receive a state retirement pension and am not old enough for social security, my tax savings will be zero. Those in my position will get absolutely NOTHING. That is just not right to penalize us retired folks who do not work. In fact since the government is forcing states to reduce the withholding on pensions BUT the tax liability will NOT go down, it puts us in a position of underpaying taxes with possible penalties. I have to change my withholding to give the extra money back so I won’t be in a position of underwithholding. Just not fair

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