Final score: $8,000 for homebuyers

First-time purchasers get a tax credit windfall if they buy before December.

By Les Christie, CNNMoney.com staff writer
Last Updated: February 17, 2009: 12:13 PM ET

NEW YORK (CNNMoney.com) -- There's a nice windfall for some homebuyers in the economic stimulus bill awaiting President Obama's signature on Tuesday. First-time buyers can claim a credit worth $8,000 - or 10% of the home's value, whichever is less - on their 2008 or 2009 taxes.

A big plus is that the credit is refundable, meaning tax filers see a refund of the full $8,000 even if their total tax bill - the amount of witholding they paid during the year plus anything extra they had to pony up when they filed their returns - was less than that amount. But there has been a lot of confusion over this provision. Adam Billings of Knoxville, Tenn. wrote to CNNMoney.com asking:

"I will qualify as a first-time home buyer, and I am currently set to get a small tax refund for 2008. Does that mean if I purchased now that I would get an extra $8,000 added on top of my current refund?"

The short answer? Yes, Billings would get back the $8,000 plus what he'd overpaid. The long answer? It depends. Here are three scenarios:

Scenario 1: Your final tax liability is normally $6,000. You've had taxes withheld from every paycheck and at the end of the year you've paid Uncle Sam $6,000. Since you've already paid him all you owe, you get the entire $8,000 tax credit as a refund check.

Scenario 2: Your final tax liability is $6,000, but you've overpaid by $1,000 through your payroll witholding. Normally you would get a $1,000 refund check. In this scenario, you get $9,000, the $8,000 credit plus the $1,000 you overpaid.

Scenario 3: Your final tax liability is $6,000, but you've underpaid through your payroll witholding by $1,000. Normally, you would have to write the IRS a $1,000 check. This time, the first $1,000 of the tax credit pays your bill, and you get the remaining $7,000 as a refund.

To qualify for the credit, the purchase must be made between Jan. 1, 2009 and Nov. 30, 2009. Buyers may not have owned a home for the past three years to qualify as "first time" buyer. They must also live in the house for at least three years, or they will be obligated to pay back the credit.

Additionally, there are income restrictions: To qualify, buyers must make less than $75,000 for singles or $150,000 for couples. (Higher-income buyers may receive a partial credit.)

Applying for the credit will be easy - or at least as easy as doing your income taxes. Just claim it on your return. No other forms or papers have to be filed. Taxpayers who have already completed their returns can file amended returns for 2008 to claim the credit.

Lukewarm reception
The housing industry is somewhat pleased with the result because the stimulus plan improves on the current $7,500 tax credit, which was passed in July and was more of a low-interest loan than an actual credit. But the industry was also disappointed that Congress did not go even further and adopt the Senate's proposal of a $15,000 non-refundable credit for all homebuyers.

"[The Senate version] would have done a lot more to turn around the housing market," said Bernard Markstein, an economist and director of forecasting for the National Association of Homebuilders (NAHB). "We have a lot of reports of people who would be coming off the fence because of it."

Even so, the $8,000 credit will bring an additional 300,000 new homebuyers into the market, according to estimates by Lawrence Yun, chief economist for the National Association of Realtors.

The credit could also create a domino effect, he said, because each first-time homebuyer sale will lead to two more trade-up transactions down the line. "I think there are many homeowners who would be trading-up but they have had no buyers for their own homes," Yun said.

Who won't benefit, according to Mark Goldman, a real estate lecturer at San Diego State University, are those first-time homebuyers struggling to come up with down payments. The credit does not help get them over that hurdle - they still have to close the sale before claiming the bonus.

One state, Missouri, is trying to get around that problem by creating a short-term loan on the tax credit of up to $6,750. The state would loan borrowers the money so they could use it at closing as part of the downpayment. Then, when the buyers receive their tax credit from the IRS, they pay back the state. Other states may follow with similar programs, according to NAHB's Dietz.

Many may look at the tax credit as a discount on the home price, according to Yun. A $100,000 purchase effectively becomes a $92,000 one. That can reassure buyers apprehensive about purchasing and then watching prices continue falling, he added.

And it provides a nice nest egg for the often-difficult early years of homeownership, when unexpected repairs and expenses often crop up. Recipients could also use the money to buy new stuff for their home - a lawnmower, a rug, a sofa - and, in that way, help stimulate the economy.

*Provided courtesy of CNNmoney.com

Save Energy and Money Today

Did you know that the typical U.S. family spends about $1,900 a year on home utility bills? Unfortunately, a large portion of that energy is wasted. And each year, electricity generated by fossil fuels for a single home puts more carbon dioxide into the air than two average cars. And as for the road, transportation accounts for 67% of all U.S. oil consumption. The good news is that there is a lot you can do to save energy and money at home and in your car. Start making small changes today (see sidebar). To cut your energy use up to 25%, see the Long-Term Savings Tips throughout this booklet.


The key to achieving these savings in your home is a whole-house energy efficiency plan. To take a whole-house approach, view your home as an energy system with interdependent parts. For example, your heating system is not just a furnace—it's a heat-delivery system that starts at the furnace and delivers heat throughout your home using a network of ducts. Even a top-of-the-line, energy-efficient furnace will waste a lot of fuel if the ducts, walls, attic, windows, and doors are not properly sealed and insulated. Taking a whole-house approach to saving energy ensures that dollars you invest to save energy are spent wisely.


Energy-efficient improvements not only make your home more comfortable, they can yield long-term financial rewards. Reduced utility bills more than make up for the higher price of energy-efficient appliances and improvements over their lifetimes. In addition, your home could bring in a higher price when you sell.


Tips to Save Energy Today
Easy low-cost and no-cost ways to save energy.

• Install a programmable thermostat to keep your house comfortably warm in the winter and comfortably cool in the summer.
• Use compact fluorescent light bulbs with the ENERGY STAR® label.
• Air dry dishes instead of using your dishwasher's drying cycle.
• Turn off your computer and monitor when not in use.
• Plug home electronics, such as TVs and DVD players, into power strips; turn the power strips off when the equipment is not in use (TVs and DVDs in standby mode still use several watts of power).
• Lower the thermostat on your hot water heater to 120°F.
• Take short showers instead of baths.
• Wash only full loads of dishes and clothes.
• Drive sensibly. Aggressive driving (speeding, rapid acceleration and braking) wastes gasoline.
• Look for the ENERGY STAR label on home appliances and products. ENERGY STAR products meet strict efficiency guidelines set by the U.S. Department of Energy and the Environmental Protection Agency.
• Visit http://www.energysavers.gov/ for more energy-saving ideas.

Provided Courtesy of The U.S. Department of Energy

7 Ways to Make Extra Money

With lay-offs and dropped benefits causing more workers to get nervous about the security of their next paycheck, some people are hustling up extra cash on the side. Through websites, handcrafted products, and other creative endeavors, anyone with a few spare hours a week can give their bank account a boost.

Here are seven ways to generate additional dough:

Launch a brand. When Kimberly Seals-Allers, former senior editor at Essence magazine, was expecting her first child, she discovered that black women face higher risks during childbirth and pregnancy. "I realized we were a special group, and I wanted to write a book about everything in black women's lives. Not just pregnancy, but money, men, and myths in our community? [I wanted] to create a new way forward."

Her first book, The Mocha Manual to a Fabulous Pregnancy, turned into a series (the next book, The Mocha Manual to Turning Your Passion Into Profit, is out this month) as well as an online magazine, maternity line, and consultancy. Seals-Allers also licensed use of the Mocha Manual name to create an instructional DVD that's sold at Walmart and supermarkets.

Seals-Allers, who started working on the Mocha Manual concept before leaving her full-time magazine job, says one of the hardest parts was giving up that regular paycheck. "I had a great job, but I wanted something more for my life," she says. One of the biggest misconceptions about going solo, she says, is that it provides more leisure time. "You will work harder than ever before, but it's more rewarding because it's for yourself," she says.

Start a blog. Barbara Saylor, 37, started her blog, Capitol B, after working in communications to give herself another outlet for writing. "I always wanted to share things with my friends and the DC community," she says. She uses Wordpress.com, the free blogging site, so her costs are minimal, and she partners with local businesses and charities to give them publicity. While she's still in the beginning stages, she plans to eventually make money through those partnerships. While she doesn't want to run banner or pop-up ads on her site, companies may pay for the publicity of being listed as partners, for example.

The key, Saylor says, is to find a niche. "How are you going to do something that's different from the millions of blogs out there?"

Create a website. Building up content and an audience are the two keys to making money from a website, says Paul McFedries, author of The Complete Idiot's Guide to Creating a Website. Then, there are three ways to make money off of it: First, by running advertisements through a program such as Google AdSense, which matches up ads with the content on your site. A website about dogs, for example, might feature ads for shelters and dog food. Second, through affiliate programs such as Amazon.com, which share book sale profits with websites that refer customers. Third, by selling products related to the website, such as a T-shirt designs or arts and crafts. By using third-party sites including Amazon Marketplace or Etsy.com, you don't even have to run the e-commerce side of things yourself.

Write for another website. Maria O'Brien, 27, earns about $1,500 a month by writing articles for eHow.com, a site that posts contributions and then shares revenues from online ads with the writers. O'Brien, who writes about personal finance, nutrition, and careers, says, "If you can string together coherent sentences, you can write for eHow." Building up enough traffic to earn as much as O'Brien can take time; some newcomers earn just a few dollars a month when they start out.

Candace Crockett, a 24-year-old stay at home mom in Seattle, started writing about parenting, health, beauty, and other topics for eHow.com after her daughter was born. She made $4 the first month and is learning how to earn more by writing articles that are more easily found through search engines. This month, she's made over $200, which covers her student loan and credit card payments. She estimates she spends about an hour a day working on the articles.
For O'Brien, who has been supporting her family more as her husband's construction business has suffered with the economy, it's been what she calls "a blessing for our family."

Design t-shirts. Companies such as CafePress.com allow people to design and sell their T-shirts for a cut of the profits. According to the company's website, some users earn over $100,000 a year. But it's not always easy: Jen Goode, who earns enough through CafePress to pay her mortgage each month, found success after a year and a half of long, sometimes 16-hour days. Her time is spent creating designs and then uploading them. She has uploaded about 2,500 designs, many of which are cartoon oriented, including the popular penguin-series. For her, she says, the secret has been to make many different images that are steady sellers, as opposed to creating one or two megahits. Now, she says she doesn't need to put as much time into her shop because she has such a large inventory of designs.

Make films. Glenn Pieper, 45, teamed up with DemandStudios.com (owned by Demand Media, along with eHow.com), to produce Spanish language videos. He earns $3,000 to $4,000 a month working around 40 hours a week. He says he didn't have a film background, but learned by practicing. "It's always a different subject, and I enjoy the freedom and creativity," he says. Plus, Piper adds, "There are no deadlines, no stress, and the pressure just comes from myself. You can't get laid off."

Sell other people's products. Make-up companies such as Avon and Mary Kay are always looking for new sales representatives, as are other companies such as kitchen products seller Pampered Chef. "If you don't have to make a big investment to get into it, it's probably not a bad idea," says Marcia Brixey, author of The Money Therapist. But she warns people to stay away from businesses that require sellers to make significant up-front purchases that they might not be able to unload.

Provided courtesy of Yahoo! Buzz

Tax Credits Worth Pursuing This Year

The very factors that have many consumers worried about affording this year's tax bill could actually work in their favor this tax season.

Taxpayers whose wages were slashed in 2008 -- or worse, who were laid off -- may be eligible for tax credits that weren't within their reach in previous years. In addition, first-time home buyers and parents of children under age 17 may also be able to save a little money on their tax bill thanks to some new credits and thresholds.

“These overlooked credits are relevant in the current economy and could mean the difference in hundreds or even thousands of dollars in your tax refund,” says John Evans, Northeast tax director at BDO Seidman.

Here are four credits that can help boost your refund.

Recovery Rebate Credit
Feel like you got shortchanged last year when the government doled out its Economic Stimulus Act rebate checks? Well, if you didn't qualify for the rebate before or didn't receive the full amount ($600 per taxpayer and $1,200 if married and filing jointly) because your income was too high (or too low), you may now be able to collect.

The rebate checks that were sent out last year were based on information on your 1040 for 2007. This second chance to collect will be based on your 2008 1040. So if your income took a hit last year, it may be worth a shot. You can also qualify for this credit if you had a child in 2008, among other reasons.



First-Time Homeowner Credit
For those who bought a home last year or want to in the months ahead, Uncle Sam has a little present for you. This tax credit, essentially a temporary, no-interest loan, is being offered to those who bought -- or will buy -- a home between April 9, 2008, and June 30, 2009, and who didn't own a home during the three years preceding the purchase.

The maximum amount of the credit equals either 10% of the home’s price or $7,500 ($3,750 if you are married, but filing separately), whichever is less. One hitch: Homeowners will have to repay the credit over 15 years by either owing more in taxes or receiving a smaller refund. So, if you claim the credit on your 2008 tax return, you’ll have to start repaying it when you file your taxes for 2009. (The 2009 tax return will include an extra line for this credit.)

Child Tax Credit
Many parents will be eligible to receive a tax credit of up to $1,000 per child this year as long as that child was under the age of 17 at the end of 2008. (This credit is in addition to the regular $3,500 exemption that you can claim for each dependent.)

The child tax credit begins phasing out for filers whose modified adjusted gross income is above $110,000 if they are married and filing jointly, above $75,000 for single filers, or more than $55,000 for married filing separately. In addition, the child (who can also be the filer’s sibling, stepchild, grandchild, niece or nephew) must have not provided more than half of his or her own support and, in most cases, must have lived with the filer for more than half of 2008.

The one catch: The amount you receive from the child tax credit is partly based on your income so you may not receive the full amount -- or possibly anything. If you don't qualify for any or all of the $1,000 child tax credit you're still in luck. Try applying for the additional child tax credit, which also offers up to $1,000 per qualifying child. (Taxpayers who qualify for parts of both credits can only receive a maximum of $1,000 per eligible child.) Typically, this credit is reserved for low-income taxpayers, but a recent change in the way the IRS computes eligibility for this credit, will allow more middle-income taxpayers to qualify this year, says Eric Smith, a spokesman for the IRS.



Earned Income Tax Credit
This credit is typically geared toward low-income taxpayers, but given the rise in the unemployment rate and wage cuts, more people are likely to qualify for it this year, says Evans. (According to the IRS, one in six taxpayers currently can claim this credit.)

To qualify, families with two or more children must have made less than $41,646 in 2008, and those with one child must have earned less than $36,995. Also, individuals without children who make less than $15,880 are eligible.

The maximum credit for each of these groups is $4,824, $2,917 and $438, respectively.

Taxpayers who qualify to claim this credit on their federal income tax return may also be eligible for a similar credit on their state or local income tax return. Twenty-two states, including New York, Maryland and Iowa, offer residents an earned income tax credit.


Provided by Smartmoney.com