Turn this year's refund into next year's credit
Use your tax refund to help pay for an energy-efficient home improvement this year and get a juicy tax credit next year.
Getting a tax refund is nice. Turning that refund into a money-saving home improvement is smart. Creating a tax credit for next year while you're at it? Very smart.
I just used my tax refund to partially pay for a new, high-efficiency central air conditioning unit for my home. See for yourself by watching the story below, then meet me on the other side and I’ll give you more information about how to claim your own tax credit.
So, as I said in the story above, I used my tax refund to partially pay for my new, energy-efficient air conditioner. It’s something I sorely needed. The one I had was broken, 20 years old and, when it was working, using a shocking amount of electricity. The new unit set me back $5,000, but that cost will be partially offset by the money I’m saving every month on my electric bills and the $1,500 tax credit I’ll be getting next April. (I also saved more than $700 by finding the right contractor to do the job. See 16 tips to save on home remodeling.)
Keep in mind that a tax deduction merely reduces the income on which you pay taxes. A tax credit reduces the money you actually owe. In other words, a tax credit is virtually as good as cash.
If you want to convert 2009’s tax refund or other savings into a 2010 tax credit-generating home improvement, here’s the step-by-step:
Qualifying improvements: 30% of the cost, $1,500 cap: (Restrictions: must be principal residence, no rentals, no new construction. You can take a total of $1,500 in 2009 and 2010 combined for a total credit of $1,500, not $1,500 each year. Expires Dec. 31, 2010.)
- Biomass stoves.
- Heating, ventilating, air conditioning.
- Insulation.(Note: Tax credit does NOT include installation costs, but you can do it yourself and get the credit for the materials.)
- Roofs (metal and asphalt).
- Water heaters (non-solar).
- Windows and doors.
Important: Only products that meet certain energy-efficiency qualifications are eligible for the credit. To find ones that qualify, either check the Energy Star website or simply ask the retailers you’re dealing with.
Qualifying improvements: 30% of the cost, no cap: (Restrictions: Both existing homes and new construction qualify. Both principal residences and second homes qualify. Rentals do not qualify. You can take a credit of 30% of the cost with no cap for improvements purchased by Dec. 31, 2016.)
- Solar energy systems.
- Geothermal heat pumps.
- Small wind turbines.
As above, only products that meet certain criteria will qualify. Check the Energy Star website or other sources, like purveyors of these products, for details.
- Cash for Appliance Clunkers. This state-sponsored rebate program is generally for appliances, not the types of home improvements that qualify for the credit. But it’s worth checking out just to make sure. And while you’re at it, take a look at the story we did called "Missed cash for appliances? How you can still save."
- Rebate finder from Energy Star. Put in your ZIP code and what you’re buying, and this site will tell you if there are rebates, recycling or sales tax incentives.
- Database of state incentives for renewables and efficiency. See if your state or local utility is offering financial incentives for specific improvements.
Bottom line? If you’ve been looking to improve your castle with an energy-efficient upgrade, now’s the time to do it. Thanks to the recession, contractors and retailers are hungry. Thanks to federal and state policy, there are major rebates and credits to collect. And because energy costs have nowhere to go but up as the economy recovers, you have a major incentive to conserve.
And as good as they are, it’s possible that these energy- saving tax credits could get even better. On March 2, the White House proposed yet another program called the Homestar Energy Efficiency Retrofit Program that could provide tax credits of up to $3,000 to homeowners who engage in a “whole home energy audit and subsequent retrofit tailored to achieve a 20% energy savings in their homes.”
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