I want to briefly address three government programs. None of them have anything to do with investing — at least not in the way we usually mean — but they can mean real dollars in your pocket.  If nothing else, this report could more than pay for your subscription to Government-Driven Investing. Taking advantage of this information is like getting paid to make money, and what’s not to like about that?
I’ve been hearing these programs alluded to in advertisements recently, and I was skeptical. I figured it was a trick or a gimmick. So I decided it was worth my time to look into them.

It turns out that none of them are “too good to be true.” They’re all legit, guaranteed by the full faith and credit of the United States government. Each of these programs could mean real dollars to you. And if you don’t happen to qualify — if you already own a hybrid car and a home — then there’s still the strong likelihood that the programs could help your children or grandchildren improve their financial health.

Let’s take a look at what’s being offered…

‘Cash for Clunkers’
If you have an old gas-guzzling vehicle, you may be able to turn it into a $4,500 voucher good toward the purchase of a more fuel-efficient set of wheels.  The House passed this bit of legislation on June 9 as part of Washington’s effort to remake Detroit and help save Chrysler and GM.

The old vehicle must be drivable, have been insured for the past year, get an average 18 miles to the gallon and be from model year 1985 or newer.

Grandma’s Cadillac Deville fits the bill. That old Suburban at the lake house might, too.

The new vehicle must cost less than $45,000 and get 10 miles to the gallon more than the vehicle being traded in to qualify for the full $4,500. (A lesser MPG gain would be worth $3,500.) The new car must be titled and insured under your name and used for a year.

Fueleconomy.gov will give you your current vehicle’s mileage rating.  Estimates say this will spur a million vehicle purchases — and that means getting a million gas guzzlers off the road, as the old cars have to be crushed (at least under the House version of the bill). The bad news with that is it means the dealer is unlikely to give you anything on top of Uncle Sam’s contribution for your old wheels, since the dealer can’t turn around and resell it.

If you have an older car worth less than $4,500, this is a great way to get more than it’s really worth, provided you’re in the market for a new car. (And who isn’t?) The legislation may see some changes (I’ll update this report when the final version clears the Senate).

First-time Home Buyers
If you have a loved-one just starting out who has yet to purchase a home (or anyone in the family who has not owned a home in the past three years), they’re eligible for an tax credit if they buy a house. The credit will be worth 10% of the home’s price, up to $8,000.

The first restriction: Income. Individuals can earn no more than $75,000, couples no more than $150,000.

Next, the loan must be backed by the Federal Housing Administration, which means the buyer will have to come up with at least a 3.5% down payment. The era of nothing down is, alas, over.

But ten states do allow bridge loans on the tax credit at little or no interest. In other words, the bank can lend $8,000 on the tax credit so the borrower can take advantage of it right away — without waiting until April 15, 2009.

Uncle Sam’s money can be applied toward closing costs, lender fees or to increase the down payment (though the money can’t be used as the entire down payment in lieu of the borrower’s own cash).

This credit expires Dec. 31. There’s some lobbying to extend the program in light of rising interest rates, but acting sooner rather than later is the prudent way to approach the program. Every lender you talk to should be telling your about this program. Please don’t dismiss it.

NOTE: California has its own, limited one-time home buying credit that could be as much as $10,000. Buyers there can claim both the state and federal credits. The California plan covers any borrower who buys a newly built property during a certain period. The home must be used as a principal residence. The program is limited to $100 million and is first-come, first served.

Plug-in Hybrid Tax Credit
If you capture the $4,500 voucher for a new car, you might want to add it to a potential $7,500 tax credit available to buyers of plug-in hybrids. Mr. Obama wants a million of these vehicles on the road by 2015, and he has a novel approach to accomplishing this: Let Uncle Sam pay for the things. That $40,000 Chevy Volt could look a lot like a 28,000 Chevy Volt with these two programs.

Now, some of these vehicles aren’t even on the showroom floor yet. In fact the Volt itself isn’t due until 2010. But when they arrive, the tax credit will look like this: The plug-in vehicle must have a battery with a minimum capacity of 4kWh. Buyers get $200 of tax credit is added for every kilowatt-hour thereafter, which is how the Volt — with its 16kWh battery — gets to the maximum $7,500 credit.

Let’s take a quick second to review: $4,500 for your clunker, $8,000 for a house, $7,500 for a snazzy new plug-in hybrid — vehicles that can travel 40 miles or farther without using a drop of gasoline. That’s a total of $20,000.

And it’s real money. You see, government programs often offer tax deductions, but a tax credit is a lot better. A deduction subtracts from income, but a tax credit subtracts from your actual tax bill.

$20,000 $20,000
Deduction Tax Credit
Annual income $150,000 $150,000
Deduction $20,000 0
Net Income $130,000 $150,000
Tax liability (28%) $36,400 $42,000
Tax credit $20,000
Net Due $36,400. $22,000

But let’s remember how we are paid — it’s not in one lump sum. We’re paid weekly or twice a month or monthly, with our federal taxes taken out a little buit at a time. In fact, most of us overpay little by little, which is why we get a refund after we file our tax returns April 15. Now, imagine if you were due a refund already and the government gives you a $20,000 tax credit. All that means is Uncle Sam is paying you $20,000. A $20,000 deduction would save you $5,600. A $20,000 tax credit, however, is $20,000.

These three programs are great deals. You’re already funding them with your taxes — you might as well take advantage of the stimulus plan. One way or another, it’s your money. The only question is whether it’s going to be put in your bank account — or your neighbor’s.