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The American Recovery and Reinvestment Act of 2009 has the following provisions.

“Making Work Pay” Credit

This is a new but temporary refundable credit for year 2009 and 2010. Qualified taxpayers will either take the credit through a reduction in the amount of income tax withheld from their paycheck in the amount of $400 ($800 for married couples filing jointly) but not more than 6.2 percent of earned income, or in a lump sum when filing their income tax return for the tax year. Individuals who are self-employed will also qualify for the credit. The credit begins to phase out for individuals with modified adjusted gross income exceeding $75,000 ($150,000 for joint filers). The credit gets completely phased out with AGI of $95,000 ($190,000 for joint filers).

$250 Economic Recovery Payment

The Act provides a one-time payment of $250 to individuals on a fixed income, including railroad retirement beneficiaries, Social Security recipients, disabled veterans, and retired government workers. This payment will only be made in 2009 and will reduce the individual’s otherwise allowable “Making Work Pay” credit.
Sales Tax Deduction for Vehicle Purchases

The Act provides all taxpayers with a deduction for sales and excise tax paid on purchase of new domestic or foreign vehicles as well as motor homes, including SUVs, light trucks, or motorcycles, weighing no more than 8,500 gross pounds. The deduction begins to phase-out for taxpayers with AGI exceeding $125,000 ($250,000 for joint filers). Additionally, deductible sales/excise taxes cannot exceed the portion of tax attributable to the first $49,500 of the purchase price.

Enhanced First-Time Homebuyer Tax Credit

The Act raises the maximum amount of the first-time homebuyer tax credit to $8,000 and extends the credit through December 1, 2009. It also completely eliminates any repayment requirement for purchases made after January 1, 2009, if the taxpayer does not sell or otherwise dispose of the property within 36 months from the date of purchase. However, if the taxpayer does dispose of the residence within this time, the recapture rules apply, requiring the homebuyer to repay any credit amount received to the government over 15 years in equal installments. Purchases made on or after April 9, 2008, and before January 1, 2009, are governed by the first-time homebuyer tax credit rules enacted in the Housing and Economic Recovery Act of 2008.

Education Credit

The Act expands the Hope college education tax credit (renaming it the American Opportunity education tax credit) for 2009 and 2010. The credit is increased to a maximum of $2,500 per year and extended to all four years of college education. Additionally, the credit is subject to more generous phase-out levels of $80,000 of AGI for individuals and $160,000 for joint filers.

Energy Incentives

Homeowners who install energy efficient windows, furnaces, and air conditioners can qualify for a tax credit for 30 percent of the cost up to a total of $1,500 aggregate amount for 2009 and 2010 installations. The Act also removes the individual dollar caps for residential energy efficient property credit for solar hot water property, wind energy property, and geothermal heat pumps.

Parveen Maheshwari is a Certified Public Accountant. His office is located in Burlingame, Calif., and can be reached at 650-340-1400 or parveen [at] cpamax [dot] com