All I want for Christmas is a new front door
Tax credit for energy-saving improvements was extended, but won't be nearly as generous in 2011. That means a rush now.
Forget holiday door-buster sales. For big savings, some homeowners are actually buying themselves new doors for Christmas this year, in time to claim the government's tax credit for home energy efficiency on their income taxes.
The credit covers energy-efficient doors and windows, insulation, roofs, water heaters, biomass stoves, and heating and air-conditioning systems.
And the savings can be big: It covers 30% of the cost of improvements, and taxpayers can get a credit of up to a total $1,500 for all qualifying improvements they've made to their primary residences during 2009 and 2010.
The credit expires on Dec. 31. But buried in the bill that extends tax cuts made while President Bush was in office is also an extension of the home-energy tax credit.
The catch: Next year, that tax credit could be reduced significantly.
Not so generous
In the bill, homeowners can claim only up to $500, says John W. Roth, senior tax analyst for CCH, a Riverwoods, Ill., tax publisher. It's also a lifetime tax credit, meaning that if you've claimed the maximum of $500 in past years for home-efficiency upgrades -- beginning after Dec. 31, 2005 -- you can't do it again.
Under the new rules, there are also limits for individual projects. For example, homeowners can receive a maximum of only $200 for replacing their windows and $150 for replacing a furnace, Mr. Roth says.
That's why homeowners who have the means and the time to take advantage of the credit that expires at the end of this year might want to get their projects done now.
Because while it still may be possible to get a credit for work done next year, it won't be nearly as attractive and might not even be much of an incentive: "If you haven't taken advantage of this credit, I think you've lost a real opportunity," Mr. Roth says.
Some homeowners, operating under the assumption that the tax credits wouldn't get renewed, have been hustling over the past several weeks to get their projects finished on time. To qualify for the credit in the 2010 tax year, not only do items need to be purchased, but they also have to be put into use, says Rial Moulton, a certified financial planner and co-founder of Retirement & Tax Planning Specialists in Spokane, Wash.
The government "didn't want people to buy this stuff and have it sitting around," Mr. Moulton says. The purpose of the credit is to make homes more energy efficient, and allowing people to buy items and store them in the garage for a couple years until they got around to installing them would defeat that goal, he says.
While the specification isn't a big issue for do-it-yourself projects, it can throw a wrench into homeowners' plans when they need a professional for installation. So at crunch time, part of good comparison shopping on these items involves not only price, but also whether someone would be able to install the items in time.
Even earlier this month, Home Depot had to inform some customers that certain projects wouldn't be finished before the credit's expiration, says Bill Phillips, director of program merchandising for Home Depot's installation business. It's not only a scheduling hurdle, he adds: Some projects require more lead time, such as custom windows, which can take weeks to get from the manufacturer.
Other projects, such as adding insulation, are doable for an average do-it-yourselfer, Mr. Phillips says. But those planning on doing their own installation should also get going to be in accordance with the law. In the event you're audited, you'd have to tell the Internal Revenue Service that you installed the items by the end of the year, Mr. Moulton says.
The fine print
To ensure the product qualifies for a tax credit, obtain a copy of the manufacturer's certification letter that says so, Mr. Phillips says. You'll need that for your records, along with all receipts, in the event that you get audited.
Also be aware that installation costs aren't covered for all projects. For instance, taxpayers get no credit for the cost of having someone install their insulation, doors, windows or roofs. Costs to install water heaters, biomass stoves and heating and air-conditioning systems, however, are covered, according to EnergyStar.gov/taxcredits.
Note that these tax credits are "nonrefundable," meaning that taxpayers can't get more back in credits than they pay in federal income tax. That said, for the 2010 tax year, unless you won't owe anything in taxes, you'd see a benefit, Mr. Moulton says.
Also, many taxpayers aren't aware that a credit gives a "way better benefit than a deduction," Mr. Moulton says. For example, a $1,500 deduction for a married couple in the 15% marginal tax bracket would end up being about a $225 benefit, he says. With a credit, you'd see the benefit of the entire $1,500, he says.
For the more ambitious and green homeowners: A separate 30% credit for other home-efficiency improvements, including solar-energy systems, geothermal heat pumps and wind turbines, is still in effect until 2016. And it doesn't have a maximum dollar amount.
More from MSN Money:
VIDEO ON MSN MONEY
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.