Getting a tax refund? Cool. Turning it into a home improvement as well as a tax credit for next year? Cooler.
I just used my tax refund to partially pay for a new, high efficiency central A/C 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 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. Keep in mind that a tax deduction merely reduces the income on which you pay taxes. A 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.
Step One: What do you need?
Tax credits are a great incentive to renovate, but not to blow money on something you don’t really need. My scenario, for example, was textbook: My air conditioner had literally stopped working, it’s nearly summer and I live in South Florida: Credit or no credit, I was buying a new air conditioner.
In short, the credit is icing: Be sure you need the cake.
Step Two: Find qualifying products
To see the details of what qualifies for the $1,500 energy tax credit, you’ll have to visit the Energy Star website. But just below are the basics. The first list is things that qualify for a tax credit of 30% of the cost, but only up to $1,500. The second list is improvements that qualify for a tax credit of 30% of the cost with no cap.
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 December 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 & Asphalt)
- Water Heaters (non-solar)
- Windows & 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 & 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 December 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.
Step Three: See if there’s additional money to be had
A $1,500 tax break is reason enough to make a necessary, high-efficiency home improvement. But as they say on infomercials, “Wait! There’s more!!!” Because depending on where you live and what you buy, your state, power company and/or the manufacturer of what you’re buying may be offering rebates as well. Again, dealers and retailers will know what’s available, but here are other places you can check.
- 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 utilities are 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 engaged in a “whole home energy audit and subsequent retrofit tailored to achieve a 20% energy savings in their homes.”