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

 

 

 

 

10 Often Overlooked Real Estate Tax Deductions

1. Home acquisition mortgage loan fees:  If you bought your primary or secondary home in 2009 you probably obtained a mortgage to finance the purchase.  That mortgage is called an “acquisition mortgage” because it enabled a purchase of the residence.  If you paid a loan fee to obtain that acquisition mortgage, usually called “points”, that loan fee qualifies as an itemized interest deduction.  Each point paid equals 1 percent of the amount borrowed.
2. Home Improvement loan fees:  If you paid a loan fee to obtain a home improvement loan, that loan fee is fully deductible in the tax year it was paid.
3. Loan fees paid to refinance a home loan or borrow against other real estate:  If you refinanced your existing home loan in 2009, or borrowed against other real estate, such as an apartment building, any loan fee you paid must be deducted over the life of the mortgage; i.e., if you paid a $1,000 loan fee to refinance with a new 33-year home mortgage, you can deduct $33.33 for each of the next 30 years.
4. When refinancing, deduct any undeducted loan fees:  Thanks to low mortgage interest rates, many home owners with equity in their homes refinanced in 2009.  These home owners should remember to deduct on the 2009 income tax returns any undeducted loan fees from prior mortgage refinance.
5. If you bought or sold property in 2009, remember to deduct prorated real estate taxes:  A major tax deduction many real estate buyers and sellers overlook is the prorated property tax they paid at the close of escrow.  Even if the other party remitted the payment to the tax collector, but your were charged a prorated portion of the tax bill,  be sure to deduct your share on your 2009 return.
6. Deduct prorated mortgage interest in the year of property purchase or sale:  Similarly, if you bought a residence (or other real estate) and took over an existing mortgage, do not forget to deduct your proratedinterest share for the month of the sale (even if the seller made the payment to the lender).  Your closing statement shows your prorated share of the mortgage interest.
7. Mortgage prepayment penalty:  If you paid off an existing mortgage early and were charged a prepayment penalty by the lender, that prepayment penalty qualified as an itemized deduction.
8. When land rent payments qualify as interest deductions:  Millions of homes are located on leased land and Internal Revenue Code 163(c) allows land rent to be deducted like interest when the lease; (a) is for at least 15 years, including renewal periods; (b) is freely assignable; (c) contains a present or future option to buy the land; and (d) is like a security interest, such as mortgage.  Of course, payments to buy the land are not deductible, nor are ground rent payments deductible if you do not have the option to buy the land, such as in a mobile home park.
9. Home construction loan interest:  If you built a new home in 2009 or are building one now, do not forget to deduct the construction loan interest paid.  It is deductible if the construction period does not exceed 24 months before occupancy of your principal residence.
10. Deduct prepaid property taxes and mortgage interest:  If you prepaid your 2010 real estate taxes in 2009, as home owners do to increase their tax deductions, or if you paid your January 2010 mortgage payment in December 2009, do not forget to deduct these extra mortgage interest and property tax payment on you 2009 tax returns.

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content courtesy of Equity Title