Tightwad Tuesday

Can people who received last year’s first-time homebuyer credit apply for the new one this year? And what if you filed your taxes early, but rather than a refund were instead informed that your return is being reviewed. What should you expect?

These are just a couple of the concerns that AP personal finance writers tackle in the latest installment of “Your Money.” If you have a personal finance question that you’d like to see answered, send it to yourmoney(at)ap.org. Please include your full name and hometown so they can be published with your question.

Q: If someone already received $7,500 for the first-time homebuyer credit, can they also receive the $8,000 credit that is part of the new stimulus plan?

— Dennis Cho, Overland Park, Kan.

A: No. The first program, which in practice was more of an interest-free loan, is for people who bought homes between April 9, 2008 through the end of 2008.

The new $8,000 tax credit, which does not have to be repaid, is for people who bought or buy homes between Jan. 1 through the end of November this year.

“The more generous program this year reflects that the housing market has not yet stabilized,” said Robert Dietz, an economist with the National Association of Home Builders.

Both programs are for first-time buyers, which is defined as anyone who didn’t own their principal home in the three years leading up to the home purchase, Dietz said.

There are income limits to be eligible for either credit. The cap is $75,000 for individuals and $150,000 for married couples.

Individuals who earn between $75,000 and $90,000 and couples who earn between $150,000 and $170,000 can apply for a partial credit.

The credits are for 10 percent of the home price, with a maximum of $7,500 or $8,000 depending on which program applies to you. For this year’s credit, you also need to own the home for three years after you buy it. If you sell it before then, you have to repay the money.

— Candice Choi

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Q. I filed my tax return early hoping to get my refund quickly, but it hasn’t arrived. When I checked the Internal Revenue Service Web site’s “Where’s my refund?” link, a notice appeared that said, “We have received your return and it is being reviewed…. You may or may not receive all or part of your refund until the requested information is received.” What does this message mean?

— Rick Fountain

A. Such a message from the IRS could mean any number of things. It could be anything from minor issues like missing paperwork, to a potential audit, said Jay Safier, a principal in the New York accounting firm of Rosen, Seymour, Shapss, Martin & Company.

But there’s no reason for panic.

Just over 1 percent of all tax returns filed last year were audited, or “examined” in IRS language. The chances of an audit rise with income, so less than 1 percent of people who earned below $200,000 were audited last year, while that figure rose to 5.6 percent for people who earned $1 million or more.

And most examinations, almost 78 percent, simply involve letters sent to taxpayers seeking more information. This is called a “correspondence audit” in the industry.

The possibilities for why a return is kicked back are endless, but some of the most common problems are mathematical mistakes; numbers entered on a return that don’t match up with a document like a W-2 form; Social Security numbers for dependents that are missing or incorrect, or a request for documentation to back up a charitable or medical deduction. Such problems can typically be handled through the mail.

Until the letter is received, it’s impossible to know if the problem the IRS detected is a major one or a minor one.

— Eileen AJ Connelly

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Q: I used to get 3 or 4 percent interest from my online savings account with HSBC but it’s been coming down for months and now it’s at 1.85 percent APY. Why have rates fallen so much?

— M.L.E., Milwaukee

A: This trend has its roots in steps taken to try to fix the ailing economy.

The Federal Reserve spent the last part of 2007 and all of 2008 cutting benchmark interest rates, essentially to zero. These interest rate moves served as the catalyst for lower rates on savings accounts and certificates of deposit at banks and credit unions nationwide. Online banks are no exception.

You may not be able to do much better elsewhere, at least not for a while.

“Shopping around can net higher returns, but keep in mind that the interest rate winds are all blowing in the same direction, and that means returns are likely to fall further,” says Greg McBride, senior financial analyst at Bankrate.com, which provides data on the latest bank interest rates.

On the bright side, inflation has fallen to essentially zero. So these lower savings returns are still attractive in terms of buying power.

— Dave Carpenter

Do you have a money saving tip for Tightwad Tuesday? Email todd.vinyard@djournal.com.

 

The Associated Press