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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.
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: