Residential energy tax credits are back
By Tom Phelan - ReminderNews
Featured Article - posted Thu., Jan. 31, 2013
As 2011 was coming to a close, I suggested homeowners take a last look at doing some energy-saving improvements that could provide some relief when they filed their federal income taxes. That relief came in the form of tax credits – dollar-for-dollar savings right off the taxes you would owe Uncle Sam.
To take your mind off the much-talked about "fiscal cliff" problem, Washington politicians added some tax credits into the American Taxpayer Relief Act of 2012 to cushion the impact. So before we may hit the rocks at the bottom of that cliff, you might want to include those tax credits in your 2012 tax return, or at least do one or two of the qualifying improvements in 2013.
There are two types of credits of interest to homeowners. The first is a 10-percent tax credit for individuals based on the cost of buying and installing any of a number of energy-efficient improvements. The maximum credit you can claim is $500.
Before you get too excited, you should understand that the $500 credit is cumulative for the years after 2005 during which the energy-efficiency tax credits were originally in force. If you took a credit on your taxes in any of those years, your credit in 2012 or 2013 will be reduced by the amount you have already claimed. So, for example, if you claimed a tax credit in 2010 for $325, you may only be able to claim $175 for any qualifying energy-efficiency improvements last year or this year.
The tax credit limit of $500 means you have to pay for $5,000 in qualifying improvements. If you had not planned to do that, don’t have the money to do that, or your home is already quite energy-efficient, this is not an attractive come-on. It's even somewhat difficult to get the full $500 credit. There are caveats to certain energy-efficiency improvements.
Installing replacement windows and exterior doors that meet EnergyStar® guidelines has one such restriction. The credit covers 10 percent of the costs of the materials up to $200. You will have to perform other qualifying improvements to approach the $500 maximum.
Window film is another potential energy-efficiency improvement. You can also add insulation to walls, ceilings, or any other parts of what is considered the "building envelope." Sealing cracks in the building's exterior, as well as in heating and air conditioning ducts to reduce the loss of heated or cooled air, could be another qualifying improvement. (These have to be within the specifications of the 2009 International Energy Conservation Code (IECC) specifications.) Pigmented metal roofs, or an asphalt roof that meets EnergyStar requirements could qualify, as well.
If you cannot take advantage of this energy-efficiency tax credit, or can't get it done in time, you might want to think about the "residential renewable energy tax credit" that does not expire until 2016. These improvements carry a much bigger price tag, but 30 percent of the total value qualifies for the tax credit, with no upper limit.
The second type of tax credit applies to builders and contractors, and therefore, only impacts individual homeowners if they are having a home built, and the builder is willing to share some of the credit with the customer.
To get an idea about what qualifies and the limits, get a copy of IRS form 5695 with its instructions.
This is only general information. You should talk to a tax professional to get advice on whether or not you can take advantage of the tax credit. You should also research whether the type of renovation you have done, or are planning to do, will qualify for a credit, and just how much you might claim against your tax bill.