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San Diego Homeowners Do You Qualify for the Home Energy Tax Credit?

Home Energy Tax Credit

Homeowners, Do you Qualify?

Homeowners Tax Credit

 

The federal energy tax credit is based on 30% of the cost of an eligible HVAC system, including installation charges.

Replacing an aging heater and cooling system in your  home can save you money over time. According to Energy Star, a federal program that promotes energy efficient, states about half of what the average household spends on energy bills goes toward heating and cooling.

Upgrading your heating, ventilation and air conditioning in your home (HVAC) to energy- efficient units can cut utility costs by about 20%, or $200 annually, on average. A tax credit for heating and cooling systems can make the project more affordable.

 

 This type of home improvement does’nt come cheap. Prices vary widely based on where you live, unit specifications, and the condition of your home, but figure a high-efficiency furnace will start around $3,500, including installation, estimates Corbett Lunsford, executive director of Chicago-based Green Dream Group. A standard furnace may cost $2,400. To help offset the price difference, the IRS allows a tax credit worth up to $1,500 on eligible HVAC systems put into service during 2009 or 2010. Consult a tax adviser.

 

Pay attention to efficiency ratings

To earn an Energy Star rating, furnaces must be more efficient than standard units, with annual fuel utilization efficiency ratings, or AFUE, of 85% for oil furnaces and 90% for gas furnaces. The Energy Star seal of approval alone isn’t enough to garner the federal tax credit. Credit-eligible gas furnaces (either natural gas or propane) must have AFUE ratings of 95% or greater; oil furnaces, 90%. A boiler must have an AFUE of 90%.

It typically takes about a decade’s worth of energy savings to recoup the investment in a new HVAC system, though that time frame can vary greatly depending on how much fuel prices fluctuate. Less apparent in dollar terms are increasing the comfort level in your home and lowering your household’s drain on non-renewable fossil fuels. Then there’s the effect on your home’s value when it comes time to sell your home.

Remember you are going to enhance your home’s salability by moving to a more energy-efficient heating and cooling system. It does’nt mean that by adding a $5000 furnace it will add $5000 to the sale price of your home, but potential buyers are less likely to push for repairs or negotiate a credit if the HVAC is in good shape. Evaluate systems older than 10 years for possible replacement.

Before considering replacing the HVAC in your home start by taking some steps to make your home more energy efficient. Begin by sealing it against air leaks. Do-it yourself caulking and weather-stripping help, as does adding weather insulation in the attic. Professional air sealing, which is more effective, can cost as much as $5000 for a large home. The payoff is energy costs should go down, and you might be able to get by with a smaller HVAC system.

Getting tax credit for your upgrades.

The federal energy tax credit is based on 30% of the cost of an eligible HVAC system. Installation charges count too. A $5000 bill would max out the credit. You will need to owe more taxes than you are trying to claim in credits to qualify. Use IRS form 5695. Save receipts for your records, as well as manufacturers’ certification statements. If a part of a new HVAC system qualifies for the credit but another part doesn’nt, ask the contractor to itemize the receipt.

The tax credit is aggregated for all qualifying upgrades – insulation, roofs, windows and so on – you can’t claim seperate $1500 credits for each project. Only improvements to your existing primary residence count. New homes and second homes are excluded.

This article provides general information about tax laws and consequences, but is not intended to be relied upon by readers as legal tax advice applicable to particular transactions or circumstances. Readers should consult a tax professional for advice.

content by courtesy of Suzanne Cosgrove/House Logic.com