I’ve been reading that many tax breaks introduced earlier this year will be expiring soon. Can you tell me which ones and when? Will I be missing out if I don’t take advantage? – Gerome, Chicago, IL

In the spring of this year, the government passed a stimulus bill to kick start consumer spending, bolster the housing market, create jobs and more or less get the economy back on its feet. And Gerome is correct - two of the most significant tax breaks for individuals will expire later this year: The new car sales tax deduction and the “first time” home buyer’s credit.

 
So, how does the new car sales tax deduction work?

If you purchase a new car, light truck, motorcycle or motor home between February 17, 2009 and December 31, 2009, you may be able to deduct state and local sales and excise taxes.  The deduction is limited to taxes paid on up to $49,500 of the purchase price - meaning if you purchase a vehicle for $60,000, you cannot deduct the entire amount of sales tax, only the portion of taxes paid on up to $49,500 of the purchase price. To be eligible, you must have a modified adjusted gross income (AGI) of less than $135,000 for single filers and $260,000 for joint filers. Additionally, this special deduction can only be taken on your 2009 tax return. The good news is that you do not have to itemize your deductions in order to claim it.  Taxpayers who don’t itemize can simply add the sales tax to their standard deduction when filing their 2009 return. 

The amount of your deduction depends on your local sales tax rate and the price of the vehicle. For example, sales tax in Chicago is 10.25 percent. So, if you bought a $30,000 new car, you would pay about $3,075 in sales tax, and this amount could be deducted from your adjusted gross income. 

 
What about the first time home buyer’s credit?

The home buyer's credit worth up to $8,000 is set to expire on December 1, meaning you need to have closed on your home by November 30 to qualify. But, given the positive impact this credit has had on the housing market (1.4 million Americans have already claimed the credit, and the National Association of Realtors estimates that 350,000 homes will be sold as a direct result of this credit), there is a good chance it will be extended until at least some point next spring and possibly through June.  The details of the extension have yet to be worked out, but it may encompass a larger group of home buyers. 

In the meantime, to be eligible for the existing credit, you have to: 

• Have purchased a home between January 1, 2009 and November 30, 2009.

• Not owned a home for the three consecutive years prior to your purchase, meaning you don’t technically need to be a “first-time” home buyer.

• Meet certain income requirements (earn less than $95,000 for single filers and less than $170,000 for married filers).

Keep in mind this is a tax credit and not a deduction, which means it reduces the amount of taxes you owe dollar-for-dollar. And, if you do not owe any taxes but are eligible for the full credit, you’ll get a check for $8,000 from Uncle Sam. Last, but not least, this credit does not have to repaid, so long as the home is owned for three years. 


Are there other tax breaks that are ending this year?

Yes. Parents or students may deduct up to $4,000 for college or other post-secondary education tuition and other qualifying fees through 2009, .....

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