The initial American Recovery and Reinvestment Act of 2009 provided an $8,000 credit for first-time homebuyers as I had discussed in my post here. The program was supposed to end on November 30, 2009.  However, the woes that befell our economy and the housing industry in particular have shown no signs of going away easily. In response, Congress passed the Worker Homeownership and Business Assistance Act of 2009 which extends the first time home buyer credit program to April 30, 2010. In a surprising move, Congress extended a credit of up to $6,500 to even existing homeowners for buying a house.

To take advantage of the program, you have to sign a contract to buy the house by April 30, 2010 and close the deal by June 30, 2010. The repeat buyers have to have the new house as their principal residence, and should have stayed in the same principal residence for five consecutive years during the last eight years.  The act also increases income limits for taxpayers eligible to take the credit under the program.  The tax credits for purchases after November 6, 2009 are phased out for a modified adjusted gross income (MAGI) between $125,000 and $145,000 for single filers and between $225,000 and $245,000 for joint filers. The existing tax credits for purchases on or before Nov. 6, 2009 phase out at a MAGI of $75,000 to $95,000 for single filers and $150,000 to $170,000 for joint filers.

The complete text of the Worker, Homeownership, and Business Assistance Act of 2009 is available here.  The Internal Revenue Service has information on the home buyer tax credit on its website here and here.  The National Association of Home Builders also has information on the home buyer tax credits on this website.  Together, these should answer most questions you might have on the credit.

One thing to note is that if you sell your existing home, the profit on the sale might be counted towards income in determining eligibility for the tax credit.  However, only the profits beyond the historic exclusions (from taxes) of $250,000 for single filers and $500,000 for joint filers are counted towards income.  This LA Times article explains this in more detail.

Missed the boat?

Yeah, we missed the boat on the substantial $6,500 credit. But actually it’s more like the boat missed us.  We crossed the river without a boat like everyone in our shoes was supposed to.  Only later, the powers-that-be decided to send a boat to provide incentives to cross the river. We had no idea that there was going to be a tax credit for existing homeowners. If we knew for sure, we would have waited.

But, no big deal. It was still a good time to buy a house.  We bought the house at an almost 40% discount from the price the previous owner paid for it almost 5 years ago.

If you are considering buying a house, you should definitely consider buying within the window providing for the tax credit, especially because it is a refundable tax credit.  In other words, you get paid the complete credit even if you owe no taxes or less taxes than the credit. The downside risk of substantial price decline seems minimal at this time because the house prices have stabilized or even crept up in some markets.

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She originally bought her condominium for $77,500 in 1997. As her condominium appreciated in value, she refinanced a couple of times and took out a home equity loan adding to her mortgage balance. Cashing out of her condominium as the condominium price appreciated during the inflating period of the housing bubble allowed her to retire some credit card debt, and pay for a new car and a new roof on the house.

After losing her job, she struggled hard to keep making her house payments for a while, but she pulled it off somehow. Finally, when it was clear she wouldn’t be able to do that anymore, she called the bank for a loan modification.

Even though she was eligible for it, the bank turned her down. The bank very cleverly asked her to hand over $18,000 including $5,000 in fees after which the bank would be able to cut down her monthly payment from $1046 to $967 or by $79 per month.

It appears the bank was taking the extra money, putting a large part of it into paying down the balance to bring loan to value within the 105% requirement of the Making Home Affordable Refinance Program, and then offering a refinance to Ms. Ulery. Of course, the bank’s solution doesn’t help or solve Ms. Ulery’s looming delinquency problem because the new mortgage payment would still not be affordable for her even if she could somehow find $18,000.

This example is pretty typical of how rational decisions are made by lenders and mortgage servicers. Ms. Ulery is eligible for loan modification as per Treasury’s guidelines for the loan modification program, but of course, the lender/mortgage servicer is NOT REQUIRED to offer it to her.

Offering loan modification to her would mean taking an immediate financial hit for the lender, which they could delay or at best avoid altogether. Ms. Ulery has been regular with her mortgage payments so far. She seems to want to keep her house and credit score, and might find a way to keep making those payments. If she were to stop making her mortgage payments and foreclose, then the bank would take a hit. But obviously, she is not at that stage yet.

That brings up a discussion of Ms. Ulery’s attempts to stay current on her mortgage and seek relief. The Making Home Affordable Program can help her some, but only when the lender/mortgage servicer finds helping her to be a better option (less costly) than not helping her and allowing her to foreclose on the house. It would seem the rational thing for Ms. Ulery would be to move toward foreclosing, because that could be an incentive for the lender to work with her.

It is unfortunate that the two parties seem to have to game their response to make the system work in their short and long-term benefit.

Ms. Ulery should also look into the Hope for Homeowners (H4H) Program. If she has a good credit history to qualify for a FHA mortgage, she could have her principal balance reduced to 96.5% of her home value. She will have to pay mortgage insurance, but at least in theory she could have a lower payment schedule. In practice however, looking at the history of H4H, the likelihood of her actually getting a H4H refinance are not very high.

What do you think? Should she stop paying her mortgage and then try a loan modification with the bank?

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Source: www.ehow.com

The Obama administration has been coming out with a slew of programs to stop the ongoing foreclosure hemorrhage in housing industry. Treasury came out with the Making Home Affordable Refinance and Modification programs earlier to help defaulting homeowners. Next came the Second Lien Program. Treasury also modified the Hope for Homeowners (H4H) program. Since then, Treasury has come out with the Foreclosure Alternatives and the Home Price Decline Protection Incentives Programs.

Foreclosure Alternatives Program

The Foreclosure Alternatives Program provides incentives to a homeowner and the mortgage servicer to pursue short sales of homes or deeds in lieu of foreclosure. Troubled Borrowers meeting the minimum eligibility requirements for a Home Affordable modification but unable to qualify for a loan modification will receive up to $1,500 to help with relocation expenses when they agree to a short sale or deed-in-lieu of foreclosure. Mortgage servicers will earn up to $1,000 for successfully completing the short sale or deed-in-lieu.

The Foreclosure Alternatives Program provides for a simplified and streamlined process, time frames, and standard documentation for short sale and deed-in-lieu. More details on the program are available here in this webpage on Treasury’s website.

Home Price Decline Protection Incentives Program

In neighborhoods where home prices are continuing to decline presenting a disincentive to the lender to do a loan modification, the Home Price Decline Protection Incentives Program provides additional cash incentives for two years after loan modification with the amount of the incentive linked to the decline in local housing prices. More details on the program are available here in this webpage on Treasury’s website.

Helping Families Save Their Homes Act of 2009

Last week on Wednesday, President Obama signed into law the Helping Families Save Their Homes Act of 2009. The Act modifies the Hope for Homeowners Program by reducing fees and providing greater incentives to mortgage servicers for loan modification. It also makes the underwriting requirements more consistent with standard FHA practices.

The Act also provides a safe harbor from liability to mortgage servicers performing a loan modification consistent with Treasury’s programs or utilizing Hope for Homeowners. Investors lobbied heavily against the provision claiming sanctity of contract law but lost in the end. Congress had earlier rejected mortgage cramdown, that is, mortgage modification by a bankruptcy judge. The safe harbor provision has been presented in as an alternative to bankruptcy cramdown.

The Impact on Foreclosures

Is the full force of the federal government as reflected in these various initiatives going to root out the drumbeat of foreclosures? I think these programs only tinker at the edges of the problem. In the end, these programs provide incentives to avoid foreclosures rather than require lenders and servicers to not foreclose. The size of the incentive is not tied to the size of the mortgage, and thus, can be relatively minor in expensive markets. Lenders and servicers have generally appeared to have chosen to not realize a quick loss on their books by loan modification or refinancing. Or maybe, they are holding out for the government to come out with even better incentives if things stay bad.

There is some hope that with the threat of investor lawsuits gone, some mortgage servicers may be more inclined to modify a loan than before. Of course, it will probably only work when the mortgage servicer is not the original lender. The safe harbor provision provides the only worthwhile ray of hope in substantially impacting ongoing drumbeat of foreclosures.

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One of the measures state of California has adopted is to raise the sales tax by 1% starting April 1, 2009.  The total statewide base sales tax is now 8.25% up from 7.25%.  A breakdown of the base tax is shown here on this web page.  Special taxing districts formed by cities, counties, towns and communities levy additional local sales tax of up to 1%, adding to the base statewide sales tax.

In fact, the highest sales tax rate in California is 10.250% in Pico Rivera and South Gate in Los Angeles County from multiple taxing districts levying taxes in the same location.  In case you wonder why the tax rate is represented to three decimal places in California, it is because in some places the third decimal place is not zero.  Sanger in Fresno County, for example, has a sales tax rate of 9.725%.  Here is a California Board of Equalization web page providing current sales tax rates for all cities and counties in California.

How do these sales tax rates compare with the rest of the nation?  For an individual location, 10.25% seems to be the highest sales tax rate in the nation, which is also matched by Chicago.

This web page here provides basic statewide sales tax rate and the total average combined state and local sales tax rate data for all 50 states.  The total average combined sales tax in California is one of the highest in the nation.  Louisiana, Tennessee, and Washington are other states topping the list with highest average combined sales tax rates.  Delaware, Montana, New Hampshire, and Oregon have no state or local sales tax.  The total average combined sales tax rates are as low as 5% in Maine, Massachusetts, and Virginia in the 48 contiguous states.

Sales Tax Holidays

I also came across this excellent blog post by Bargaineering about state sales tax holidays which have been in place in many states starting this decade.  Thirteen states besides District of Columbia have declared sales tax holidays for 2009.  Of course, California has never been one of them.  The table below shows the sales tax holiday days and the restrictions applicable to the purchase.

2009 State Sales Tax Holidays

Source: Federation of Tax Administrators

(updated May 4, 2009)

* dates are for calendar year 2009, as of March 19, 2009. Some state have not published 2009 information on their website; old information may be provided in the links for these states.
** Holiday will only be allowed in years where the South Carolina Board of Economic Advisors certifies sufficient revenue growth.

Are the Sales Tax Holidays Worth It?

Sales tax holidays certainly appear to be a good time to wait to shop where possible.  In effect, shopping then is like shopping during sale, except every item of the kind, say clothing, would be on sale.

Talking of sales, there are sales galore all through the year.  I wonder if stores also have a sale during these holidays, so it becomes a real not-to-be-missed opportunity.  The sales tax holidays may not be such a good deal if you could only save on up to 10% of sales tax, but pay regular prices.  Clothing sales routinely include discounts from 25% to 50%.

Of course, when talking about discounts, some percent off a jacked up full price may be no bargain at all.  The only way to shop smart is to have a general idea about good price for an item before hand, and then compare the final discounted prices at different merchants to decide if the price is really a good deal.

Buying an item from an e-tailer on Internet could also be a good idea.  Depending upon your and the merchant’s location, buying items on Internet may not cost you any sales tax at all.

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Second Lien Program

As I had discussed in my earlier post here, the Home Affordable Modification Program reduces mortgage payments on the primary debt for homeowners close to defaulting or foreclosing.  However, the Home Affordable Modification Program did not automatically modify the payments on any secondary lien on the house.

Source - http://www.flickr.com/photos/respres/2539334956/

With the Second Lien Program, payments on the second mortgage will be sharply reduced by participating mortgage lenders according to a set formula for any customers who have modified their first mortgage.  For borrowers paying principal and interest on the second mortgage, the interest rate would be lowered to just 1%.  For borrowers paying interest only, the interest rate would be lowered to 2%.

If any part of loan balance was forgiven by the lender on the first mortgage, the same proportion of the second mortgage would be forgiven.  The second lien can also be extinguished for a lump-sum payment according to a pre-set formula determined by Treasury.  Basically for second loans due payment for more than 180 days, the lender will be paid three cents on the dollar for extinguishment.  For loans past due less than 180 days, the lender would be paid anywhere from four to twelve cents on the dollar for extinguishment depending upon loan to value (LTV) and debt to income (DTI) ratios.

Besides sharing the cost of reducing monthly payments with the lender, Treasury is also offering lenders $500 cash incentive upfront and $250 a year for three years if the buyer maintains payments after loan modification.

Hope for Homeowners Program

The Treasury is also trying to revive its beleaguered Hope for Homeowners Program (H4H) by offering new incentive payments for lenders and requiring mortgage servicers participating in Home Affordable Modification program to evaluate if the borrower could qualify for H4H.  Treasury will pay lenders $2,500 at the time of H4H refinance and $1,000 a year for up to three years if the borrower continues to make mortgage payments on time.

H4H refinance potentially offers a homeowner facing foreclosure a way to reduce loan balance to 96.5% of the current home value.  The remaining loan balance will be written off by the lender as a loss.  However, the borrower must be able to qualify for an FHA (Federal Housing Administration) loan, has to pay mortgage insurance premiums, and has to share any gains from selling a home in future at an appreciated price with the government.

The Impact on Foreclosures

So, is it all wonderful?  Will these new initiatives be the last nail on the coffin burying homeowner defaults and foreclosures?  Well, not quite.

Treasury itself says that the Second Lien Program will help reduce mortgage payments for one to one and a half million borrowers out of the three to four million homeowners estimated to be helped by the original Home Affordable Modification program.  It is not expected to expand the pool of borrowers expected to be helped any more than the primary mortgage modification program.  It will streamline the process in that the uncertainty in dealing with the second mortgage on a house will be eliminated for those qualifying for the Home Affordable Modification program.

The H4H program was launched last year amid much fanfare, and has been a miserable failure.  It has helped a grand total of one homeowner avoid foreclosure so far.  The lenders have opted to take the loss at foreclosure rather than take a loss by cutting some of the principal that borrowers owe.

With the new announcement, lenders could pocket up to $5,500 for modifying a loan balance down to 96.5% of the current house value.  However, the H4H program does not require a lender to modify the loan balance.  It is left to the lender’s fiscal interest/judgment to decide whether to modify the loan balance or not.

Simple math suggests that $5,500 is not enough of an incentive when the house value has dropped precipitously in expensive markets like California, Nevada and Florida.  The new program might nudge some lenders to cut down the loan balance for some homeowners facing foreclosure, but it is not likely to help the vast majority of homeowners facing foreclosure.

The Obama administration was also trying to get legislation passed in Congress allowing bankruptcy judges to alter loan terms and shield mortgage firms from investor lawsuits when they ease loan terms.  The House passed the legislation, but the Senate left out the provision to allow bankruptcy judges to modify the loan balance.

With the potential threat of mortgage reduction by a judge gone, there is little likelihood of a lender cutting down the loan balance for a foreclosing homeowner.  Foreclosures, meanwhile, continue as the economy and unemployment go from bad to worse.  At least 4 million homeowners are estimated to face foreclosure this year compared to about 2.2 million homeowners in 2008.

So, all in all, Treasury’s new Second Lien and Hope for Homeowners Programs are unlikely to add new foreclosing homeowners to the pool of those likely to be helped by existing programs.  The programs are unlikely to substantially stop the continuing drum beat of additional foreclosures.

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Historic Mortgage Interest Rates

Figures below show the historic conventional conforming 30-Year fixed mortgage rates from 1971 through 2009, and 1993 through 2009.  Mortgage interest rates averaged the highest at over 18.5% in 1981 (along with high inflation).  Mortgage rates rarely went above 7% after 2002, and averaged over 6.6% at their 2008 peak in July.

Thanks to the concerted efforts by the Federal Reserve and Treasury, mortgage interest rates have come down drastically since then.  For the week ending April 30, 2009, the average interest rate for 30 year fixed-rate mortgage was 4.78% with 0.7 points in fees.  This equaled the rate for the week of April 2, 2009, and is a historic low according to Freddie Mac’s survey going back to 1970.

Additional Fees

Fannie Mae and Freddie Mac have raised some of the fees charged to lenders when they buy or guarantee certain types of mortgages, most of which are going to be passed down to consumers.  It will impact both — mortgages for new purchases, and refinances of existing mortgages.

Fannie Mae has revised upwards its Loan-Level Price Adjustment (LLPA) Matrix effective April 1, 2009.  Depending on the borrower’s credit score and (mortgage) loan to (home) value ratio (LTV), the additional fees range from 0.25% to 3% of the loan.  Refinancing with a loan bigger than the principal balance on existing mortgage for a cash-out will add another 0.25% to 3% in fees.

For example, someone with a credit score of 660 and LTV of 85% would pay 2.5% in fees instead of 1.75% prior to April 1, for a 30-year fixed-rate mortgage.  Additional 2.5% fees would be tacked on for cash-out refinancing in such a case.

Condominium mortgages seem to have been hit the hardest.  Refinancing a condo loan might be affected by the presence of commercial tenants or investors in the entire condo project.  There is now a mandatory 0.75% fee on all condominium loans regardless of the borrower’s credit score, and other fees have been jacked up.  For example, someone with a credit score of 690 and LTV of 80% on a condominium with a 30 year fixed-rate mortgage with initial payments of interest only will now pay 3.25% in fees instead of 1.25% prior to April 1.

Some lenders are going further in imposing new restrictions.  For example, Wells Fargo now requires a minimum FICO credit score of 720 for loans with LTV greater than 80% instead of 620.  It has also reduced the maximum total debt-to-income ratio from 45% to 41%.

The cost of private mortgage insurance, or PMI, required when LTV is greater than 80%, is also going up for those with lower credit scores under the new “risk-based pricing” by mortgage insurance companies.

Appraisal Rule Changes

Under Fannie Mae and Freddie Mac’s new Home Valuation Code of Conduct, effective May 1, mortgage brokers can not order appraisals directly, and lenders can not select or communicate with appraisers.  Lenders must use third-party “appraisal management companies” to assign the job to appraisers in their networks.  If the appraisal comes lower, the loan may not go through.  As a consequence, borrowers will probably have to pay appraisal fees upfront whether the loan goes through or not.

Appraisers are also being required to include a “market condition” report providing statistical analyses of local sales and pricing trends.  It is expected to add to the cost of preparing an appraisal report, which is sure to be passed down to the borrower.

Each point in extra fees is equal to 1% of mortgage loan.  For an average $200,000 mortgage, each point in fees equals $2000.  An increase of three points in fees means additional fees of $6,000.  In the more expensive neighborhoods with higher home prices, the additional fees could amount to two to three times as much.

It would make sense to ask your lender or mortgage broker if your loan will be sold to or insured by Fannie Mae or Freddie Mac to see if you would be liable for these higher fees.  It could be worth a lot of money to compare  independently or with a mortgage broker, the interest rate and total fees charged on loans sold/insured by Fannie Mae/Freddie Mac as well as other lenders before selecting a loan package for your new home mortgage or refinance.

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As I had described, Treasury has a comprehensive self-assessment tool provided on this website to determine eligibility for the Making Home Affordable Refinance and Modification Programs.

Now, there is another option, thanks to Fair Isaac Company, the company that created and computes the FICO credit score significantly affecting the credit transactions for all consumers.  Fair Isaac has launched MortgageReliefOnline.com.

It is a free service designed to help you find out if you qualify for mortgage relief under the Government’s Making Home Affordable Program.  If you qualify, this site provides free access to HUD-approved certified professional counselors at Money Management International.  If you qualify for free mortgage counseling, Fair Isaac also gives applicants a free credit report and credit score.

To use the free service, you have to fill out a form on the web site.  A word of caution here — it is an educational web site.  It won’t actually refinance or modify your loan.  You will ultimately need to work with your mortgage servicer for loan refinancing or modification.

Lately, there has been a spate of complaints by homeowners trying to stave off foreclosures about delays and frustrations in dealing with lenders.  This site can help with determining eligibility for the Making Home Affordable Program.

Have you had to deal with your lender and/or mortgage servicer to refinance or modify your mortgage?  How satisfied have you been with your experience?  What did you learn that could help others going through the process, or help improve the process?

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Making Work Pay Tax Credit: Eligible workers would get 6.2% of their income back subject to a maximum of $400 for single filers and $800 for joint filers.  The credit begins to phase out for those making more than $75,000 ($150,000 for couples), and is not available to those making more than $95,000 ($190,000 for couples).  Those who have taxes withheld from their paychecks will see their withholding reduced.  Others can claim the credit on their taxes to be filed next year.  The Act provides for the tax credit in 2009 and 2010.  It is a refundable tax credit, so if they owed taxes are less than the credit, the difference is refunded to the tax filer.

What about those who are not wage earners today?  The stimulus package includes a one-time $250 payment to those receiving railroad retirement benefits, U.S. veterans disability compensation or pension benefits, and Social Security retirement income, disability income or supplemental security income.  It also includes a similar $250 payment in 2009 to certain government retirees who are not eligible for Social Security benefits.

Source - http://www.flickr.com/photos/yomanimus/102798907/

First-time Homebuyer Credit: First-time homebuyers who purchase a home this year until December 1 can get a refundable tax credit valued at 10% of the purchase price up to $8,000 for married filing jointly or $4000 for married individuals filing separately.  You are considered a first-time homebuyer if you did not own any other main home during the three-year period ending on the date of purchase.  The credit can be used in the 2008 tax return by using Form 5405.  The tax credit is phased out for individuals with adjusted gross income between $75,000 and $95,000 ($150,000 and $170,000 for joint filers).  Best of all, there is no payback requirement on this payment, unlike the $7,500 credit applicable to house purchases after April 8, 2008, and on or before Dec. 31, 2008.

Alternative Minimum Tax Exemption: The Act increases the AMT exemption to $70,950 for married couples and $46,700 for individuals (up from $69,950 and $46,200 in 2008).

Temporary Suspension of Taxation of Unemployment Benefits: The first $2,400 of unemployment tax compensation received during 2009 won’t be subject to income tax.

New Car Sales Tax Deduction: The state and local sales and excise taxes paid on up to $49,500 of the purchase price of a new vehicle purchased from February 17, 2009 to the end of year can be deducted from income for tax calculations even if Schedule A is not used for itemizing deductions.  The deduction is phased out for incomes between $125,000 and $135,000 ($250,000 and $260,000 for joint filers).  Those who choose to take the state and local sales tax deduction in lieu of state and local income tax deduction in their tax return cannot also take the new car sales tax deduction.

Health Insurance Continuation Subsidy: Laid off workers get a subsidy of 65% on their COBRA continuation premiums for up to nine months.  The job loss must be between Sept. 1, 2008, and Dec. 31, 2009.  Those who lost their jobs between September 1, 2008 and February 17, 2009, but did not choose COBRA because of high costs, get an additional 60 days to choose COBRA and receive the subsidy.  The subsidy phases out for incomes between $125,000 and $145,000 ($250,000 and $290,000 for those filing joint returns).

Education Related Credits and Benefits: American Opportunity education tax credit is replacing the Hope Credit for 2009 and 2010.  It would give a $2,500 partially (40%) refundable credit to cover each of four years of college instead of a nonrefundable credit of up to $1,800 for each of the first two years of college in the original Hope credit.  Also, withdrawals from 529 college savings plans can now be used to purchase computers and computer technology including educational software and Internet access charges in 2009 and 2010.  The tax credit is phased out for incomes between $80000 and $90000 ($160000 and $180000 for joint filers).  Furthermore, the cost of course materials like textbooks is now included as part of qualified tuition and related expenses eligible for the credit.

Earned Income Tax Credit: The Act increases the earned income tax credit to 45% from 40% of the working families’ first $12,570 of earned income.  The phase out of the credit would begin now at $21,420 instead of $19,540 for married couples filing jointly.

Child Tax Credit: The Act makes the refundable child tax credit available to low-income taxpayers by extending the credit to 15% of the earned income in excess of $3000 in 2009 and 2010 instead of the $8,500 floor applicable in 2008.

A summary of key provisions of the American Recovery and Reinvestment Act of 2009 is available from the Senate Finance and House Ways and Means Committees.  The IRS web page here includes information related to the Act.

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Turns out, there is live telephone and face-to-face tax preparation and filing help available from a variety of sources.  Here is a list of what I found out.  Many of these IRS sponsored programs are geared toward low to moderate income filers and the elderly.

Live Telephone Assistance

IRS has live telephone assistance available for individual filers at 800-829-1040.  The hours of operation are: Monday – Friday, 7:00 a.m. – 10:00 p.m. local time (Alaska & Hawaii follow Pacific Time).  Telephone assistance numbers for other filers including people with hearing impairments, and businesses are available on this IRS web page.

Taxpayer Assistance Centers

Face-to-face personal tax help can be obtained at the IRS Taxpayer Assistance Centers (TAC).  You can search for the nearest TAC according to the ZIP code at the TAC Site Search web page.  You can generally walk in to these centers for help.   You can also schedule an appointment for a complicated return.  The Centers are closed on federal holidays.

Volunteer Income Tax Assistance Program (VITA)

The VITA Program includes certified volunteers who have been trained to help prepare basic tax returns.  It serves moderate-income taxpayers (with less than $42,000 in income), seniors and the military.  VITA sites are generally located at community and neighborhood centers, libraries, schools, shopping malls, and other convenient locations.  Free electronic filing of the return in addition to the free tax preparation help is also available at many VITA sites.  To locate the nearest VITA site you call IRS at 800-829-1040.

Tax Counseling for the Elderly (TCE)

This is a similar IRS sponsored program for those age 60 and older.  Volunteers provide free tax counseling and basic income tax return preparation.  More information on TCE is available at 800-829-1040.

AARP offers its Tax-Aide counseling program at more than 7,000 sites nationwide during the filing season as part of the TCE program.  Certified volunteer counselors help people of low-to-middle income and those age 60 and older prepare and file basic returns for free.  The nearest AARP Tax-Aide site can be located by calling 888-227-7669 or by visiting AARP’s web page.  Many of these AARP Tax-Aide sites are not walk in sites but are operated on an appointment basis.

The IRS web page here includes the details of information and documents necessary at the VITA/TCE site for tax return preparation and filing:

• Proof of identification

• Social Security Cards for you, your spouse and dependents and/or a Social Security Number verification letter issued by the Social Security Administration

• Birth dates for you, your spouse and dependents on the tax return

• Current year’s tax package if you received one

• Wage and earning statement(s) Form W-2, W-2G, 1099-R, from all employers

• Interest and dividend statements from banks (Forms 1099)

• A copy of last year’s Federal and State returns if available

• Bank Routing Numbers and Account Numbers for Direct Deposit

• Total paid for day care provider and the day care provider’s tax identifying number (the provider’s Social Security Number or the provider’s business Employer Identification Number)

• To file taxes electronically on a married filing joint tax return, both spouses must be present to sign the required forms.

Earned Income Tax Credit

The federal Earned Income Tax Credit or the EITC is a tax benefit for low to moderate income working individuals and families.  Congress first passed EITC legislation in 1975 to partly offset the burden of Social Security taxes on low income families and to provide an incentive to work.  EITC is a refundable tax credit.  So, if the calculated taxes are lower than the credit, the part of credit remaining after paying taxes owed is refunded to the tax filer, resulting in a net payment to the tax filer.

Unfortunately, it is estimated that 15 to 25 percent eligible households do not claim the EITC they are entitled to.  That is leaving thousands of dollars on the table.  It is inexcusable.  Hope you don’t let that happen to anybody you know.

According to the IRS web page to qualify for EITC, both Earned income and adjusted gross income (AGI) must each be less than:

• $38,646 ($41,646 married filing jointly) with two or more qualifying children;

• $33,995 ($36,995 married filing jointly) with one qualifying child;

• $12,880 ($15,880 married filing jointly) with no qualifying children.

The maximum credit for 2008 are:

• $4,824 with two or more qualifying children;

• $2,917 with one qualifying child;

• $438 with no qualifying children.

Also, to qualify for EITC the investment income for 2008 must be $2,950 or less.

You can use the EITC Assistant on the IRS web site to find out if you are eligible for EITC.  You can also get personal help from IRS at 170 locations nationwide to prepare your income taxes if you are eligible for EITC.  You can get a list of these offices at this IRS web page.  For additional help, these offices will also be open during Saturday, February 21 from 9:00 a.m. until 2:00 p.m.

Many states and local cities/districts have their own Earned Income Credits.  These state credits can vary from 15 to 30% of the federal credit.  So, please do check if your state/locality offers additional EIC.

Recovery Rebate Credit

Finally, it seems like there is a lot of confusion about last year’s economic stimulus payment and the recovery rebate credit.  Someone I met the other day said to me that last year’s stimulus was taxable income and had to be entered on the tax forms.  I was surprised and decided to check it out.

IRS acknowledges that there is some confusion about these issues.  Actually, the economic stimulus payment received last year is not a taxable income.  It should not be reported as income at all.

The economic stimulus payment was for 2008, but was handed out based on the 2007 tax returns.  The recovery rebate credit is the IRS vehicle to make whole those filers who were shortchanged.  In other words if somebody did not receive the payment or received less than full payment ($600 per taxpayer or $1,200 if married filing jointly) but should have, then they can do so now with their 2008 taxes.

You may also be eligible for it if your tax status has changed in 2008 compared to 2007.  For example, you were a dependent on someone else’s tax return in 2007 but cannot be claimed as a dependent on any return in 2008.  Or your family added a qualifying child in 2008.

You can use this IRS web page to find out your 2008 stimulus payment, if you don’t remember the amount.  You can also call the IRS at 1-866-234-2942 to find it out.  The IRS is planning to make available a recovery rebate credit calculator at this IRS web page in late February to help calculate the actual credit to use on the return.  Or, you can use the worksheet in Form 1040 instruction booklet to figure out the credit by hand.   For most filers the credit is likely to be zero.

So, happy filing and credit claiming.  If you know any other often overlooked tax benefits, please leave a comment.

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I think I used Tax Cut for the first couple/three years, and TurboTax since then. I used to faithfully wait every year for the coupon to show up in the mail before purchasing TurboTax from Costco or Staples. With the coupon it never cost me more than about $25. However, this year even after the coupon, TurboTax Deluxe cost me $40 at Costco.

It seemed like the usual price creep on a popular product, so I set out to look at some options. Looks like there are many options.

The Internal Revenue Service (IRS) has been trying for some years to get more people to file their taxes electronically. With that goal, IRS has expanded its partnership programs this year to allow even more filers to prepare and file their taxes online. They have three main programs enabling online tax preparation and filing.

Free File

Free File is an IRS program allowing eligible filers to prepare and file their federal taxes online. The Free File program has come about through a partnership between IRS and the Free File Alliance LLC, a group of private sector tax software companies. This year there are about 20 tax software companies participating in the program.

There are many eligibility requirements based on criteria including Adjusted Gross Income (AGI), age, State of residence, active military employment status, etc., and they vary from company to company. Generally, to be eligible the AGI has to be no more than $56,000.

While the federal tax returns are free to prepare and file electronically on these participating company web sites, the state returns are not for free. Prices for state return preparation and filing start at about eight dollars. Generally, all the websites follow an interview process asking questions with the answers going to the right IRS tax form. This makes it much easier for the filer as there is no need to try to figure out where to enter what on a form.

These are some of the companies participating in the Free File program from the IRS website here:

1040NOW.NET: Free federal tax preparation and e-file if your AGI is between $5,000 and $56,000 and you live in the following states: AL, AR, AZ, CA, CO, CT, DC, DE, GA, HI, IA, ID, IL, IN, KS, KY, LA, MA, MD, ME, MI, MN, MO, MS, MT, NC, ND, NE, NJ, NM, NY, OH, OK, OR, PA, RI, SC, UT, VA, VT, WI, or WV. Includes Form 982 (Mortgage Forgiveness Debt Relief).

TaxSlayer.com: Free federal tax return preparation and e-file if your AGI is $10,000 or less or you are age 25 or younger or 65 and older, or if you are Active Military or you qualify for Earned Income Tax Credit. Includes Form 982 (Mortgage Forgiveness Debt Relief).

FileYourTaxes.com: Free federal tax preparation if your Adjusted Gross Income is $56,000 or less and you are aged 17 to 60 and you live in the following states: AL, AR, AZ, CA, CO, DE, FL, GA, IA, ID, IL, IN, KS, KY, LA, MD, MI, MN, MO, MS, NC, NE, NJ, NM, NV, NY, OH, OK, OR, TX, UT, VA, WA, or WI. Includes Form 982 (Mortgage Forgiveness Debt Relief).

H&R Block’s TaxCut Free File: Free federal online tax preparation and e-file if your adjusted gross income is $56,000 or less and you are age 50 or younger. Includes Form 982 (Mortgage Forgiveness Debt Relief).

TurboTax® Freedom Edition: Free federal tax preparation and e-file if your Adjusted Gross Income is $30,000 or less or you are active military or you qualify for Earned Income Tax Credit. Includes Form 982 (Mortgage Forgiveness Debt Relief).

I-CAN!® Free File: Free federal tax preparation and e-file if your adjusted gross income is $30,000 or less or you qualify for the Earned Income Tax Credit. En Español.

CompleteTax: Free federal tax preparation and e-file if your Adjusted Gross Income is $31,000 or less.

EfileTaxReturns.net: Free federal preparation and e-file if your adjusted gross income is between $5,000 and $56,000, and you live in the following states: AL, AR, AZ, CA, CO, CT, DE, GA, HI, IA, ID, IL, IN, KS, KY, LA, MA, MD, ME, MN, MO, MS, MT, NC, ND, NE, NH, NJ, NM, NY, OH, OK, OR, PA, RI, SC, SD, UT, VA, VT, WI or WV.

123Easytaxfiling: Free federal tax preparation and e-file if your adjusted gross income is $56,000 or less and you live in the following states: AL, AR, AZ, CA, CO, CT, GA, IA, IL, IN, KS, KY, LA, MA, MD, MI, MN, MO, NC, NE, NJ, NY, OH, OK, OR, PA, SC, VA, WI, or WV.

Free TaxACT: Free federal online tax preparation and e-file if your adjusted gross income is $56,000 or less and you are age 19 through 55 years old. Includes Form 982 (Mortgage Forgiveness Debt Relief).

ISECURETAX: Free federal tax return preparation and e-file if your adjusted gross income is between $11,000 and $56,000. Includes Form 982 (Mortgage Forgiveness Debt Relief).

FREE TAX RETURN: Free federal tax preparation and e-file if your adjusted gross income is $56,000 or less and you live in the following states: AK, AZ, CA, CO, DC, DE, HI, GA, IA, ID, IL, IN, KS, KY, LA, MA, MI, MN, MT, NC, ND, NE, NH, NM, NV, NY, OH, OR, PA, RI, SC, SD, TN, UT, VA, VT, WI, WV, or WY.

FreeTaxUSA.com: Free federal tax preparation and e-file if your adjusted gross income is $56,000 or less and you live in the following states: AL, AZ, CA, CO, CT, DE, GA, IA, ID, IL, IN, KS, KY, LA, MD, MI, MO, MS, NC, NE, NJ, NM, NY, OH, OK, OR, PA, SC, UT, VA, or WV. Includes Form 982 (Mortgage Forgiveness Debt Relief).

CitizenTaxFree: Free federal online preparation if your adjusted gross income is $56,000 or less, you are age 50 or younger and live in the following states: AL, AR, AZ, CA, CO, CT, DE, FL, GA, HI, IA, ID, IL, IN, KS, KY, LA, MA, MD, ME, MI, MN, MO, MS, MT, NC, ND, NE, NJ, NM, NY, OH, OK, OR, PA, RI, SC, TN, TX, UT, VA, VT, WI or WV.

OnLine Taxes @ OLT.com: Free federal tax preparation and e-file if your adjusted gross income is $56,000 or less and you are age 50 or younger. Includes Form 982 (Mortgage Forgiveness Debt Relief).

Free1040TaxReturn.com: Free federal tax preparation and e-file if your adjusted gross income is $56,000 or less and you are age 55 or younger and you live in following states: AL, AR, AZ, CA, CO, DC, DE, GA, IA, IL, IN, KS, KY, LA, MA, MD, MI, MN, MO, NC, NE, NJ, NM, NY, OH, OK, OR, PA, SD, UT, VA, WI, WV.

OnlineTaxPros.com: Free federal tax preparation and e-file if your adjusted gross income is between $11,000 to $56,000. En Español.

TAX$IMPLE Ultimate Version: Free federal tax preparation and e-file if you are age 66 or less and you live in the following states: AL, AR, AZ, CA, CO, CT, DC, DE, HI, GA, IA, ID, IL, IN, KS, LA, MA, MD, ME, MI, MN, MO, MS, MT, NC, ND, NE, NH, NJ, NM, NY, OH, OK, OR, PA, RI, SC, SD, TN, UT, VA, VT, WI, WV, or WY. Includes Form 982 (Mortgage Forgiveness Debt Relief).

ezTaxReturn.com: Free Federal tax preparation and e-file if your Adjusted Gross Income is $56,000 or less and you live in the following states AL, AR, AZ, CA, GA, IL, LA, MA, MI, MS, NC, NJ, NY, OH, PA, VA, or WI.

eSmartTax From Liberty Tax Service: Free Federal online tax preparation and e-File if your adjusted gross income is $56,000 or less, and you are age 50 or younger. Includes Form 982 (Mortgage Forgiveness Debt Relief). En Español.

Free File Fillable Forms

This is the IRS Free File program with no income limits. However, it is not as user-friendly as the Free File program above for those with incomes less than $56,000. There is no interview process. You can fill in information online at the IRS Free File Fillable Forms website on your choice of tax forms and schedules, and file your return electronically sans any fees. You can only prepare your federal tax return. There is no charge for preparing the federal tax return on the web site and filing it online. No state forms or state return filing is supported under the program. So, it is only a good alternative if you were going to manually do your federal taxes on paper.

IRS e-file for Individuals

This is the full-fledged IRS program for preparing and filing federal and state tax returns electronically without any income limitations and with the same user-friendly features as in the Free File program. Of course, there are fees associated with preparing and filing returns. The program is administered with a number of different companies offering their services. The software costs and fees for electronic return filing vary from vendor to vendor. The tax preparation software offered by these companies can be used online or can be downloaded for use on the home computer.

These are some of the companies participating in the IRS e-file program from the IRS website here:

Taxsoftware.com – Online 1040/1040A/1040EZ, 1041, 1065, 1120/S, 1099, 990, and Excise Tax Prep Software. Prices range from $1 to $90, and include printing, e-filing, states, and online customer support.

ISECURETAX.COM – For everyone, we guarantee our tax calculations or we pay the interest and penalties. State tax e-file programs are available for all states.

Taxhead.com – E-file made easy. Prepare your 1040A/EZ taxes in minutes with our free tax software. E-file and get a refund in days. Success guaranteed. Discount for first-time filers, low-income & EIC people.

#1 Discount Tax Return Service – Get your tax refund back quickly using IRS E-file for only $8.50. Guaranteed to be easy and accurate.

average1040.com – $7.99 to e-file your federal and state returns together (at the same time) – or – $7.99 to e-file your federal return by itself – or – $7.99 to e-file your state return by itself.

E-file-Tax-Returns – $9.95 Our very best tax preparation software. Free Customer Service questions welcomed, free e-file, free FAQ, free extensions. EITC & EZ & EIC welcome. Instant state tax forms done at same time.

TurboTax – The easy way to get the biggest tax refund possible, guaranteed. It asks easy questions and automatically fills in the right tax forms for you. Get free e-file with TurboTax.

OnlineTaxPros.com – FREE federal, FREE printing, guaranteed tax calculations. Easy, safe & secure. English version and version en Español.

RepublicTax – $17.76 – Form 1040. Let RepublicTax make E-filing less taxing. State return only $12.88. Credit and debit cards accepted. Direct deposit makes filing a snap!

OnLine Taxes @ olt.com – Simple! Fast! Accurate! Very comprehensive, SCHs C/D/E/F & more. All states and state-only. FREE customer service. RT options. $7.95 federal & $7.95 state. 888-OLT-4-TAX, since 1999 ~ e-file today!

ezTaxReturn.com – Maximize your deductions with our simple and secure interactive interview program. Save time and money! No forms, no math, no tax experience necessary. E-file included. Satisfaction guaranteed!

123 Easy Tax Filing – Only $9.95 to prepare and e-file your federal return.

CompleteTax – Quick and easy! Complete your federal and resident state taxes for a low price, including FREE e-filing. No credit card needed. Try it free – pay only when you are ready to e-file.

TaxACT – Your fast, easy and secure tax software solution. Free to start your return, free e-file included. Under $10 for your federal return and $16.95 for both fed & state. Free technical support!

TAX$IMPLE – Prepare and e-File federal, state and city tax returns online for individual, corporate, partnership, fiduciary, exempt, gift, and estate using IRS look-alike form and source documents-based system.

TaxSlayer.com – Prepare your federal and state for FREE and e-file for only $9.95!

1040Now.net – FREE Online Tax Filing. Convenience! No restrictions, no download! COMPLETE library of tax forms. State tax e-file programs are available for all states.

H&R Block – H&R Block makes e-file easy with online, software or any office. Visit hrblock.com to start your 2008 tax return or call 1-800-HRBLOCK to find a tax professional near you.

1040Return.com – The complete package: $14.95 – 1040EZ/1040A; $15.95 – 1040; $9.95 for multiple states, free e-file federal and state or option to mail return. Secured, easy and reliable.

Express1040.com – $8.95 for federal and state tax preparation, printing and e-filing. Use our easy interview process and try it for free! You don’t pay until you decide to print or file your return.

OnePriceTaxes – File taxes online this tax season with OnePriceTaxes for only $14.95. Federal and state tax preparation for one low price. Try out our easy-to-use online tax software for free.

TaxBrain – TaxBrain.com is a full-service, online tax center. File 1040EZ, 1040A, 1040, Schedules A, B, C, D, F, EIN and over 30 other forms. Every state supported. No upfront fees. Free, live assistance.

I-CAN! – E-file your federal and state return for FREE if your Adjusted Gross Income is $30,000 or less, or you get the Earned Income Tax Credit ~ otherwise pay just $7.99 for both.

eFile Express – This is the ONE! Prepare, verify and print your return for free. Just $7/return to e-file. Extremely easy to use. Enter your tax data off-line, then securely e-file your return via the Internet.

800-TAX REFUND, Inc. – Is online filing right for you? Read our valuable advice. In addition to our online filing (from $9.95), we also offer professional tax services. Free state is included with all federal prep/e-file.

FileYourTaxes.com – File your taxes with a 20% discount. It is fast, easy, secure, and has all the features you need for your federal and state returns. Follow the link for details and to redeem your discount.

Peoples Tax – Our highly qualified tax professionals can prepare and e-file your personal or business tax returns. Our Triple Guarantee includes your satisfaction guaranteed.

eSmart Tax.com – eSmart Tax by Liberty Tax offers federal/state e-file, bank products, self-select PIN, electronic payment options, refund direct deposit. Orgullosamente sirviendo a la comunidad hispana.

Reviews

Reviews and critiques of many tax preparation programs for the IRS Free File and e-file programs are available on the Web.

About.com has a review of some Free File tax preparation programs. However, these reviews have not been updated as of today and are based on last year’s versions of the software.

Giveme A Review includes a review of online tax filing programs here. Its reviews include TaxBrain, TaxHawk, TaxHead, CompleteTax, TurboTax, TaxBack, TaxEngine, and TaxAct. The reviews are based on features, speed and ease of use, pricing, and customer support.

TopTenREVIEWS provides an excellent review of online tax software products. It compares them on an exhaustive list of features, e-filing features, tax assistance, and technical help/support. It provides an overall rating and individual ratings on intuitive navigation, novice friendliness, ease of sign-up, feature set, and documentation/help and support. It rates TurboTax, TaxAct, and H&R Block TaxCut as the top three online tax software products.

To conclude, Free File Fillable Form just doesn’t stack up to other online tax preparation and filing programs. Compared to the zero cost of the Free File Fillable Form program, other programs cost anywhere from 20 bucks and up, but they also enable state tax filings and are a lot more easy and convenient.

I am thinking of using Tax Act this time to do my taxes. What software package are you going to use to file your taxes? What have you used in the past? What would you recommend?

Related posts:

1. Home Buyer Tax Credits 2009 Act 2 I am back to the blog after spending months being extremely busy looking to buy a house.  We finally bought...