This winter millions of homeowners find themselves unprepared for both the lower temperatures and the dramatically higher heating bills that follow at the end of the month. Those expensive utility invoices put unwanted pressure on budgets that are already strained to the max due to holiday shopping and the lingering impact of a brutal economic recession.
But there is a silver lining in those snow clouds for homeowners who are proactive about reducing their energy consumption without sacrificing warmth and cozy comfort, thanks to special energy tax credit incentives.
People can now weatherize their houses and condos in a way that makes them eligible for rare and rewarding perks from the Internal Revenue Service – but they need to act fast because the credits are scheduled to expire at the end of the year.
Last year’s federal Recovery Act expanded two home energy tax credits: the non-business energy property credit and the residential energy efficient property credit.
Non-business Energy Property Credit
• The non-business credit equals 30 percent of what a homeowner spends on eligible energy-saving improvements, up to a maximum tax credit of $1,500 for the combined 2009 and 2010 tax years.
• Expenses may include what you spent on high-efficiency HVAC systems or water heaters and stoves that burn biomass fuel, for example, and you can also add in the money spent on labor from licensed professionals who installed the units.
• Other types of products that are eligible are such things as energy-efficient windows and skylights, energy-efficient doors, certain types of building insulation and specific types of roofs that help reduce your carbon footprint. (The cost of labor to install these particular items is not included, however, in the tax break program.)
Invest as little as $5,000 before the end of the year on eligible energy-saving improvements and you may earn up to a $1,500 credit against your next IRS return.
Residential Energy Efficient Property Credit
• This property credit is the second tax credit designed to encourage consumers to invest in “green” energy. It equals 30 percent of what a homeowner spends on equipment that qualifies such as wind turbines, solar electricity systems, solar powered hot water heaters, or high-tech geothermal heat pumps.
• Most of the time the labor costs are also included and qualify toward your tax credit, and there is not cap on the amount of credit that can be earned on most of these items – with the exception of fuel cell property.
• To be sure that your purchases count you should check the manufacturer’s tax credit certification statement that comes with the equipment. It can normally be viewed at the manufacturer’s website or is included in the paperwork that came with the product.
• The IRS wants to remind homeowners that this manufacturer’s certification is not the same as the Department of Energy’s Energy Star label. Although some Energy Star labeled products do qualify for the tax credits, others are not eligible.
Even if you still do not have the time to make your energy improvements before the ball drops on New Year’s Eve, you may have made purchases or improvements earlier in the year that qualify. As with any tax issue you should consult your financial planner or tax preparation professional to find out if you are eligible for these generous energy credits and to find out how to document your eligibility in order to receive your rewards when you file your taxes for 2010. Although most of the USA is still in a deep freeze it is important to keep in mind that April will be here before you know it. So now is the time to start organizing those tax receipts and putting documents in order so that you can file without stress – and without missing out on any tax breaks you may have earned – in time to make the April 15th filing deadline.
Eligible homeowners can claim both of these credits when they file their 2010 federal income tax return. Because these are credits, not deductions, they increase a taxpayer’s refund or reduce the total tax that you owe. An eligible taxpayer can claim these credits, regardless of whether he or she itemizes deductions on a Schedule A. The form to use to calculate and apply for the credits is Form 5695 Residential Energy Credits.
Of course it is important to keep in mind that these potential tax savings are in addition to any sustainable energy savings that you will enjoy because you made these kinds of improvements or upgrades. Those savings can offset monthly expenses, add value to your home, and pay you back for many years to come – both in terms of comfort and financial savings