New Homeowner’s Tax Credit – Part Trois

Well, well, well. The federal government has extended the new homeowner's tax credit to cover purchases that close on or before June 30, 2010. They have also added another important date--you must sign the contract to purchase the home by April 30, 2010. I guess a little more of the stimulus money will be going to everyday people.

The Feds have also changed the rules a bit. You still must have not owned a home for at least three years to qualify for the full $8,000 new homeowner's tax credit. However, the amount of income you can have to qualify for the full credit was raised to $125,000 if you are single, and $225,000 if you are married and file a joint return.

They also added a new wrinkle. If you have owned a home for five of the previous eight years you can qualify for a credit of up to $6,500. This expands the pool of potential house buyers substantially.

Now for the bad news. The new homeowner's tax credit is not retroactive. The new rules are effective for sales that happened on or after November 6, 2009. All those folks who have owned a home for more than five years and closed on their new home on November 5, 2009 are out $6,500. The same goes for buyers who exceeded the income limits and thus did not qualify for the new homeowner's tax credit earlier in 2009.

How to Protect Personal Data

You need to have a methodology for protecting both your electronic data and any physical records you have.

The best way to protect physical (hardcopy) files is to lock file cabinets and restrict access to files to only those who need to have access. You also need to protect against an outside effort to view the files either from a break in or by leaving files open on a desk where the public can see them.

Protecting your computer files is difficult. If you are connected to the Internet, you are vulnerable to any number of attacks. Hackers are constantly trying to break into computers. Robot programs exist that spend all their time trying to break passwords and access computers hooked to the internet. The popular thumb drives are dangerous. They are easy to lose and, if lost, work on any computer. You need to make sure no information is located on the drive that is not encrypted, and the encryption key cannot be on the thumb drive.

Laptops are also dangerous. If you lose a laptop, it is easy to take the hard drive out and put it into another computer, even if it is protected by a password. Remember, the hackers are smarter than you when it comes to computer security. Use the tools that are available to you.

You should have a firewall between your computer and the internet and highly secure passwords to access the computer and key programs. The password should be a combination of letters, numbers and symbols that have no meaning in any dictionary in the world (good luck on this one). Personal information should be encrypted. A lot of computer consultants are going to make a lot of money with this one.

The key is to put a plan into place that protects the information you gather from unauthorized use.

There are heavy penalties for failing to put a program into effect and for the failure to notify the proper authorities if a breach occurs. For most small businesses, the penalties would probably put them out of business. These can include having an injunction taken out against you, restitution, civil penalties, and the cost of the investigation. A civil fine of up to $100 per data subject affected and $50,000 for each instance of improper disposal will be imposed.

There is much more that can be said about the new law. Do you have any experience with identity theft and any tips on protecting data?

I wonder if the rush to protect this information will produce the same yawn and ho hum reaction as Y2K.

How Safe Is Your Idenity

I was at a doctor’s office last week. The X-ray technician came out and asked for me by first name. I followed her through the door and she checked my last name. She told me that they are not allowed to say a person’s first and last name in front of other patients. Why did this happen? It is all part of the current effort to prevent identity theft.

A couple of years ago Massachusetts passed a very tough data security law. The law imposes strict security procedures on any business that collects personal information? The law has had several implementation dates that have been postponed. Currently the drop-dead date is March 1, 2010. The general consensus is that the date will not be postponed again.

What is interesting is that your first and last names as well as your address are not considered personal information. Thus, the law does not cover the basic demographic information kept in your contact manager. However, if you combine your client’s first name or initial and last name with a list of other information then you become subject to the law. The other information covered by the data security law are: Social Security Number, Drivers License Number, State Issued ID Card Number, Credit Card Number, Debit Card Number, or Financial Account Number. The last one is interesting because checks have first and last name and the financial account number. So every time you send a check to someone you are risking identity theft.

Whom does this law cover? Any business that collects personal information from its customers must comply. If you sell a product to a customer and they pay you any way other than cash, you have to follow the law. That pretty much covers all companies. How many businesses accept only cash? Practically none. So the only folks who are not covered by the law are drug dealers and other illegitimate businesses. (Wouldn’t it be interesting if such businesses could not be caught for their more dangerous activities but did get caught by the Data Security Breach Law)?

What does this law cover? Any physical or electronic files that contain the covered information are subject to the law. So if you have names in one file and credit card numbers in another file and no method for connecting the two files you would not come under the jurisdiction of the law. Not many businesses would do this—it would make your business difficult to manage.

The law requires four things:

1. Assess your files and systems to indentify Personal Information.
2. Adopt policies and procedures to protect the information.
3. Destroy the information on a regular basis as required by law.
4. Report any unauthorized use or acquisition of the information.

Your policies and procedures must be in writing.

My next blog will cover HOW you protect your data and any physical records you have.

New Homeowners Credit Revisited Again

The new homeowner’s credit mentioned a couple of times in my previous blogs expires in about two months. To take advantage of this credit you must actually close on your new house by November 30, 2009. You also must fit the IRS definition of being a new homeowner, which is you must not have owned a home in the three years prior to the closing on your new home.

With the slow pace of mortgage approvals you need to identify the house now and get the mortgage process moving to be able to close by November 30th. We refinanced our house starting in January of this year and did not close until the first week of April. A three month turnaround is not acceptable if you want to take advantage of the credit. $8,000 is a lot of money to lose out on.

See my blog of February 25, 2009 for more information on this credit.

Electric Cars

I am on an automobile kick this week. There was a big story on the news about electric cars hitting the market with some history of the vehicles and some interesting information on the cars.

The Chevrolet Volt was prominently mentioned. It is supposed to get 230 miles per gallon of gas and cost about $43,000. What a deal that must be. Let’s take a look at that.

Assume that you buy a Volt and drive exactly 230 miles per week. That’s a gallon of gas a week. Suppose in 2 or 3 years gas is at $5 per gallon. It’s going to cost you $5 per week or $260 per year. Not bad.

Instead you buy a Toyota Prius for about $23,000. It gets 50 miles per gallon. You drive the same 230 miles per week it’s going to cost you $23 a week — essentially five times the cost of gas for the Volt. So you will be spending $1,200 per year on gas, an increase of $940 over the Volt. That means that it will take 21 years to get back your added investment of $20,000 in the Volt. Of course this calculation changes if you drive more or less than these numbers or if the price of gas is different than $5 per gallon. You also can get a tax credit of $2,500 for the Volt but no credit for the Prius.

Taking it one step further, you buy an economy car for $15,000 that gets 25 miles per gallon (is that an economy care anymore) and drive that same 230 miles per week. Total gas cost for the year is $2,400 or an increase of $2,140 over the Volt. This time it will take you 13 years to get your money back BUT you will have to swap out the batteries in the Volt at some time in that period.

It takes about 7 years to get your money back if you compare the economy car with the Prius.

These electric vehicles certainly save gasoline but are not necessarily economical. However, being economical is not necessarily the reason you but a Volt.

Gas Prices Revisited

Back in January, I predicted that gas prices would be at $3 per gallon now. I missed by about 40 cents. Some areas of the country did see gas prices at this level and eastern Massachusetts saw some stations selling premium gas above that price. Generally I should stick to accounting and not predicting the future.

However, the idea of trading up to a car that gets better mileage is still a good idea. Gas prices have bounced around lately but they will be headed up (there I go predicting the future again). The “Cash for Clunkers” program (see my previous blog) is in full swing and may be over by the time you read this. Getting more bang for your buck is always a good idea.

Cash For clunkers

Vacation is over. Time to get back to the computer!

The “Cash for Clunkers” program is in full swing and the auto dealerships are very happy. People are buying cars again thanks to a gift from Uncle Sam. With all the money they are throwing around in Washington, it is good that a little of it is actually going to everyday people.

I would like to add just a few personal comments on the program.

Is the money really going to everyday people? Hopefully, yes. The Toyota Prius sold for $24,000 when it qualified for a tax credit of $3000 and if you wanted one, you had to go on a waiting list. Once the credit expired the Prius sold for $21,000 and there were plenty of them on the car dealership lots. Is the same thing happening now? Are the dealers jacking up the price they accept in the bargaining dance? Probably, some are, after all they need to make a buck too. But my feeling is that the majority of this money is going into the consumers’ pockets.

Congress funded the program with $1,000,000,000 (oops, now $3,000,000,000). Wow, that’s a lot of money. It was supposed to last until November. Wow, that’s a long time. It was supposed to fund the payment on 250,000 cars. Wow, that’s a lot of cars. Wait a minute. Is it really a lot of cars? Historically, annual car sales in the US run between 13 and 15 million vehicles. Currently, it is running at a rate of about 11 million a year. That’s a million cars a month or 400,000 a week. They funded about 4 days worth of sales. Of course, not all vehicles qualify. I think it is time for a few arithmetic lessons in Washington.

The dealers are supposed to scrap the vehicles, the idea being to improve the overall mileage for cars on the road. This is accomplished by replacing the oil with “liquid glass” and running the car, which essentially destroys the engine. This could lead to fraud. Some dealers might certify that the car was scrapped when it was not. Is there a paper trail that needs to be followed to make sure this happens? Luckily this is not the consumers problem.

What happens when the program finally runs out of money? My guess is that car sales will drop a bit but people will have been shaken out of their economic sleep and consider purchasing a new car. There also is pent-up demand for cars as people make their old vehicles work a little longer. Eventually they will want to replace the old clunker.

All in all, I’m happy they have put this program into place. I believe the money is going to the consumer, car sales are revved up a bit, and the vast majority of dealers will be honest.

Here is the official government website to get real information on the program:

http://www.cars.gov/