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What's in the Stimulus Bill for You?

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During the debate over how Congress would spend nearly a trillion dollars to try to reinvigorate the economy, legislators dangled a number of attractive proposals before taxpayers' eyes. Even though the bill's price tag ultimately came in at a healthy $787 billion, however, many of those eye-catching features simply disappeared.

Nevertheless, many valuable provisions managed to survive, which will help both ordinary taxpayers and the businesses that serve them. Here's a brief look at some of the tax items covered by the stimulus compromise, which has now passed both houses of Congress.

More free money
Many criticized the government for last year's stimulus payments of $600 per person and $1,200 per family. Those sums were designed to spur consumer spending, but critics argued they were too easy for people to save instead. Still, that didn't stop the new bill from including a similar but smaller package. Individual workers will get $400, while families will receive an $800 credit. Single taxpayers who make less than $75,000, and couples making less than $150,000, will get the full credit both for 2009 and 2010.

However, rather than sending everyone a one-time check, the administration plans to pass money through to workers by reducing the amount of tax withheld in their paychecks, beginning in June. While big-ticket retailers like Best Buy (NYSE: BBY  ) and Tiffany (NYSE: TIF  ) won't get customers wielding huge windfalls like they did last year, the government hopes that workers will spend more of the roughly $13 per week they'll receive, rather than saving it.

A boondoggle for car sales
Car and truck dealers shouldn't feel entirely shut out of the stimulus package. This year only, those who buy a new vehicle costing as much as $49,500 will be able to deduct any sales tax they pay on their purchase, if they earn less than $125,000 ($250,000 for couples).

The actual tax savings from the provision won't be huge. Someone buying a $40,000 car in a state with a sales tax of 6% would be able to deduct $2,400, which would cut their taxes by $840 if they're in the top 35% tax bracket. Still, every little bit will help for ailing carmakers like General Motors (NYSE: GM  ) and Ford (NYSE: F  ) , whom you can expect will trumpet the provisions in their commercials to drive hoped-for sales.

Homebuilders rejoice
Also getting a piece of the pie: homebuilders like Toll Brothers (NYSE: TOL  ) and Pulte Homes (NYSE: PHM  ) . The compromise bill provides an $8,000 credit to first-time homebuyers who buy before Dec. 1. The same income limits that apply to the $400 worker credit also apply here. Although a larger $15,000 tax credit fell prey to cost-cutting negotiations, the bill changed current law to make it so that homeowners no longer have to repay the credit over time.

Homebuilders pushed for the biggest provision they could get. The real question is who will benefit more: the buyers who'll actually claim the credit, or sellers, who might be able to keep prices firm thanks to thousands of extra dollars from the government. At this point, anything that can push home sales out of the cellar is probably a positive, whoever reaps the greatest reward.

A grab bag of other provisions
Plenty of other goodies in the bill give taxpayers a chance to reduce their bill from the IRS. Certain energy-efficient improvements, such as adding insulation or buying a new air conditioner or furnace, can qualify for a 30% tax credit up to $1,500. Those with kids in college could see additional savings. An expanded tuition credit could pay those who make less than $80,000 (or $160,000 for couples) as much as $2,500, and it'll make $1,000 available even to families that don't pay enough tax to claim a credit ordinarily. And in a nod to computer makers like Dell (Nasdaq: DELL  ) , expenses to buy computers will now be allowed as qualified distributions from 529 college savings plans.

As you can see, the final stimulus package doesn't share the simplicity of a $600 check. You'll have to do some work to make sure you get as much benefit as possible from its provisions. Still, the potential rewards are much greater, so it's well worth the effort -- especially if you were planning to make some of the targeted purchases already.

More on the government's economic rescue plans:

At our Motley Fool Stock Advisor newsletter, Fool co-founders Tom and David Gardner always look for the investing angle to current news. Find out what recommendations they're making in these difficult times by taking advantage of our free 30-day trial offer.

Fool contributor Dan Caplinger likes tax breaks as much as the next guy. He doesn't own shares of the companies mentioned in this article. Dell and Best Buy are Motley Fool Inside Value recommendations. Best Buy is a Motley Fool Stock Advisor selection. The Fool owns shares of Best Buy. Try any of our Foolish newsletter services free for 30 days. The Fool's disclosure policy stimulates your knowledge.


Read/Post Comments (12) | Recommend This Article (20)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 17, 2009, at 3:29 PM, FinancialFellow wrote:

    I'm pretty bummed that the homebuyer's tax credit got changed from any home buyer to just first time homebuyer's. I'm also disappointed that it got reduced from $15K to $8K but, the restriction to first time homebuyer's is something I take issue with more. Giving out a $15K tax credit to anyone that bought a primary residence this year would give a real boost to the real estate market. I think it would have been well worth the cost and more effective at bringing the economy out of recession than other parts of the stimulus package that remain in the bill.

    With the economy in as poor shape as it is I wouldn't be suprised to see more people taking on a second job to help make ends meet: http://financialfellow.com/2009/02/13/poll-would-you-get-a-s...

  • Report this Comment On February 17, 2009, at 4:01 PM, andys2i wrote:

    Thanks for the great info and I am looking forward to some cash in my pocket. In regards to the taxation and payment dates, this article had some great coverage of the various tax breaks in the stimulus package, http://www.savingtoinvest.com/2009/02/your-work-home-educati... , but question I have is - will be able to claim the home buyer and car credit in our 2008 returns?

  • Report this Comment On February 17, 2009, at 5:57 PM, jeffflkramer wrote:

    It is sad to see the homebuyer's tax credit changed from any home buyer to first time home buyers. They will never learn... pushing first time home buyers was what started this mess, as lending organization started loaning to anyone that had a pulse.

  • Report this Comment On February 17, 2009, at 7:12 PM, Johnnicash wrote:

    I like cheese. Come June I can afford $13 more cheese/week.

  • Report this Comment On February 17, 2009, at 7:19 PM, njbrown113 wrote:

    This is a joke, Were all screwed, and rightfully so.

  • Report this Comment On February 17, 2009, at 8:56 PM, catoismymotor wrote:

    I see some infrastructure plays that can be made. Other than that it reads like a version of the New Deal if it had been drafted by the Carter Administration. And that is NOT mean as a compliment.

  • Report this Comment On February 17, 2009, at 9:13 PM, trenton1ryan wrote:

    By the time most people get their $, they'll be sticking it in a mattress, so things won't be that much better than they are right now-likely worse.

    What would be interesting would be to have the Chinese become a consumer nation. With the amount of people they have, they might be able to make a dent in things.

  • Report this Comment On February 17, 2009, at 9:15 PM, xetn wrote:

    There is virtually nothing in this "bailout" bill that is good for anyone. The reason is INFLATION!. Everyone seems to be equating more dollars as a good thing, but what is really important is the VALUE of the dollar and it is inflation that reduces the real value of the dollar. The reason the housing credits will not work is because the government is trying to maintain high house prices and that is the real issue. It will take a large reduction in the price of housing to stimulate purchasing. Large job loses and the threat of job loses will further reduce house purchase.

    This bill's additional government spending will greatly inflate the economy and greatly reduce the value of the dollar. Take a look at gold; the value of gold in dollar terms has increased by almost $60. this past week because of the spending bill. Put another way, the value of the dollar has declined by $60.

    If government spending were the real cure for the financial crisis we would never have a crisis because the Fed has been pumping out greater and greater amounts of new dollars since the dot.com crash trying to forestall recession and all that additional inflation has just prolonged not prevented the recession.

  • Report this Comment On February 18, 2009, at 8:24 AM, dianelady wrote:

    my husband is losing his job as of March 5, they are offering retirement. The offer was put up and its understood, if this early R isn't taken , there will be no job. So no brainer , nothing in the stimulas package for us. No pay check , no tax cut. We are really bummed, not prepared to go back to square one at our age, he would not have retired and could not we feel until age 66. He is now 63, the struggle will begine, we get nothing out of this page. It appears to leave seniors in the dust.

  • Report this Comment On February 18, 2009, at 8:26 AM, dianelady wrote:

    Also no unemployment I understand when you are retired. Is this true? I have been wracking my brain trying to figure out how we will survive now for the rest of our lives . His 401K was wrecked by the bad economy..

  • Report this Comment On February 18, 2009, at 9:43 AM, KWT8011 wrote:

    "I like cheese. Come June I can afford $13 more cheese/week."

    Hey thats like 6 lbs a month of really good cheese.

    "So no brainer , nothing in the stimulas package for us. No pay check , no tax cut. We are really bummed, not prepared to go back to square one at our age, he would not have retired and could not we feel until age 66. He is now 63, the struggle will begine, we get nothing out of this page. It appears to leave seniors in the dust."

    Depends on how much you really bring in. Maybe you fall in the category of getting the extra $1000. I don't know anything about withdrawing from your 401k but maybe the taxes on that are reduced in June too.

  • Report this Comment On February 19, 2009, at 2:54 AM, jjoyce6018 wrote:

    If I may borrow an expression "putting lipstick on pig" where are the things that will put confidence and trust back into the financial system and really get things going...seems now we accept change just for the sake of change, and any kind of movement as an indication there is life ?

    It will be a miracle if anything good comes out of this mess anytime soon ! remember the Great Depression of 1921? Or of 1947? Or of 1981? No you don't..why ?

    Because the mistaken policies of 1929-33 were generally not followed in these downturns..1929 here we go again..wake me when it's over ;)

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Dan Caplinger
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Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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