Time is running out for the Residential Energy Property Credit, available for homeowners who improve their homes’ energy efficiency.
Homeowners have until Dec. 31 to purchase and install qualifying items, such as biomass stoves, heating and cooling systems, insulation, roofing, water heaters and windows and doors. The credit is a dollar-for-dollar reduction on the amount of tax owed, allowing homeowners to recoup 30 percent of the cost, up to $1,500.
Requirements for the credit
Home improvements must be in place for the tax year, either 2009 or 2010, for which they are claimed. You’ll file Form 5695 along with your 1040 for the applicable tax year.
The improvements, in most cases, must be made to your principal residence. This is the home in which you live.
The credit can be a big help at filing time, but it is nonrefundable, which means you can use it to help zero out any tax bill you might have, but any excess credit won’t produce a refund
What qualifies?
While the credit limit has changed, the improvements are essentially the same as before.
Energy-efficient home products eligible for the $1,500 maximum credit include:
- Insulation.
- Exterior windows and skylights.
- Storm windows.
- Exterior doors.
- Storm doors.
- Metal or asphalt roof.
- Central air conditioning.
- Air source heat pump.
- Natural gas or propane furnace.
- Oil furnace.
- Gas, oil or propane water boiler.
- Advanced main air circulating fan.
- Gas, oil or propane water heater.
- Electric heat pump water heater.
- Biomass stove.
Homeowners who opt for more advanced home energy upgrades get an even better break. Under the stimulus law, geothermal heat pumps, solar water heating, photovoltaic systems and small wind turbines could qualify for a tax credit equal to 30 percent of the cost, including installation. There is no maximum credit cap in these cases as long as they are installed in the home by Dec. 31, 2016.
Specific energy certification standards for each product type are tracked by the federal government’s Energy Star program.
Expecting lots of takers
“This credit makes a lot of sense for people in this economy,” says Smith. “The new equipment also should mean reduced energy costs going forward. I expect that these improvements would help preserve or increase the value of a home. Obviously any buyer would love to buy any home that’s energy efficient.”
Jim Wang of Columbia, Md., certainly agrees. He had lived for more than a year with leaky windows and sliding doors. This year, he decided it was time to replace them all, with a little help from the tax code.
“We replaced everything because they were old, original to the house and very drafty,” says Wang. “You could actually see holes through them and the metal ones got cold and hot. They were a mess. We were going to do it anyway, but the energy credits will certainly help defray the costs.”
Many homeowners will likely do the same type of repairs, making upgrades to common energy-wasting areas in their homes and claiming the $1,500 when they file their tax return next year.
Read more: Tax breaks for home energy efficiency improvements http://www.bankrate.com/finance/taxes/tax-breaks-for-home-energy-upgrades-1.aspx#ixzz17XdT5L7Q