2011’s federal energy tax credits of up to $500 for various home improvements are a far cry from what they were last year. But if the limits and other fine print—which we’ll get to—doesn’t dissuade you and you really need to upgrade one or more of the following systems, take advantage of the energy tax credits.
Biomass stoves
Heating, ventilation, air conditioning
Insulation
Roofs (metal and asphalt)
Water heaters (non-solar)
Windows, doors, and skylights
Storm windows and doors
The energy tax credits are small, but at least a credit is better than a deduction:
Deductions just reduce your taxable income.
With a credit, you get a dollar-for-dollar reduction in your tax liability: If you get the $500 credit, you pay $500 less in taxes.
Other limits on IRS energy tax credits besides $500 max
Credit only extends to 10% of the cost (not the 30% of yesteryear), so you have to spend $5,000 to get $500.$500 is a lifetime limit. If you pocketed $500 or more in 2009 and 2010 combined, you’re not entitled to any more money for energy-efficient improvements in the above seven categories. But if you took $300 in the last two years, for example, you can get up to $200 in 2011.
With some systems, your cap is even lower than $500.$500 is the max for all qualified improvements combined.Certain systems capped below $500
No matter how much you spend on some approved items, you’ll never get the $500 credit—though you could combine some of these:
System Cap
New windows $200 max (and no, not per window—overall)
Advanced main air-circulating fan $50 max
Qualified natural gas, propane, or oil furnace or hot water boiler $150 max
Approved electric and geothermal heat pumps; central air-conditioning systems; and natural gas, propane, or oil water heaters $300 max
And not all products are created equal in the feds’ eyes. Improvements have to meet IRS energy-efficiency standards to qualify for the tax credit. In the case of boilers and furnaces, they have to meet the 95 AFUE standard. EnergyStar.gov has the details.
Tax credits cover installation—sometimes
Rule of thumb: If installation is either particularly difficult or critical to safe functioning, the credit will cover labor. Otherwise, not. (Yes, you’d have to be pretty handy to install your own windows and roof, but the feds put these squarely in the “not covered” category.)
Installation covered for:
Biomass stoves
HVAC
Non-solar water heaters
Installation not covered for:
Insulation
Roofs
Windows, doors, and skylights
How to claim the 2011 energy tax credit
Determine if the system you’re considering is eligible for the credits. Go to Energy Star’s website for detailed descriptions of what’s covered; then talk to your vendor.
Save system receipts and manufacturer certifications. You’ll need them if the IRS asks for proof.
File IRS Form 5695 with the rest of your tax forms in 2012.
This article provides general information about tax laws and consequences, but isn’t intended to be relied upon as tax or legal advice applicable to particular transactions or circumstances. Consult a tax professional for such advice, and remember that tax laws may vary by jurisdiction.
Article by Donna Fuscaldo, House Logic
Donna Fuscaldo has written about personal finance for more than decade for Dow Jones Newswires, the Wall Street Journal, and Fox Business News. She’s currently a freelance writer with her own home office.
Showing posts with label tax credit. Show all posts
Showing posts with label tax credit. Show all posts
Wednesday, December 28, 2011
Saturday, February 27, 2010
IRS Clarifies What's Needed to Claim Tax Credit
The Internal Revenue Service has clarified which documentation taxpayers need to submit to claim the first-time and move-up homebuyer tax credit.
While the IRS is still requiring the filing of Form 5405, it is not demanding that all parties’ signatures be on the HUD-1 settlement document in areas where requiring both the buyer and the seller to sign the document isn’t common.
The IRS clarification says: "In areas where signatures are not required on the settlement document, the IRS has clarified that it will accept a settlement statement if it is completed and valid according to local law. … The IRS encourages those buyers to sign the settlement statement prior to attaching it to the tax return.”
For repeat buyers, the IRS is seeking documentation that home buyers have lived in the previous property for a consecutive five of the past eight years. Proof can include property tax records, home owner insurance records, or mortgage interest statements.
Source: Washington Post (02/20/2010)
While the IRS is still requiring the filing of Form 5405, it is not demanding that all parties’ signatures be on the HUD-1 settlement document in areas where requiring both the buyer and the seller to sign the document isn’t common.
The IRS clarification says: "In areas where signatures are not required on the settlement document, the IRS has clarified that it will accept a settlement statement if it is completed and valid according to local law. … The IRS encourages those buyers to sign the settlement statement prior to attaching it to the tax return.”
For repeat buyers, the IRS is seeking documentation that home buyers have lived in the previous property for a consecutive five of the past eight years. Proof can include property tax records, home owner insurance records, or mortgage interest statements.
Source: Washington Post (02/20/2010)
Thursday, February 25, 2010
Could the Tax Credit Be Extended Again?
The pressure is increasing on Congress to renew the homebuyer tax credits for a third time.
The first $7,500 tax credit was passed in 2008 and required first-time buyers to repay the credit over 15 years. A few months later in 2009, Congress expanded the credit to a maximum of $8,000 that didn’t have to be paid back.
At the end of last year, Congress extended the benefit again until April 30 with an extra two months on top of that to close. A new credit of $6,500 was added for move-up buyers, too.
Now representatives of the housing industry are lobbying for another extension. Some experts, including Mark Zandi, chief economist at Moody’s Economy.com, who supported the earlier credits, think the time has come to let it go.
“It’s worn out its benefit,” he says. “If you extend it again, it isn’t going to do much, and what you’re doing is providing a tax break to folks who bought anyway.”
Source: The Wall Street Journal, Nick Timiraos (02/22/2010)
The first $7,500 tax credit was passed in 2008 and required first-time buyers to repay the credit over 15 years. A few months later in 2009, Congress expanded the credit to a maximum of $8,000 that didn’t have to be paid back.
At the end of last year, Congress extended the benefit again until April 30 with an extra two months on top of that to close. A new credit of $6,500 was added for move-up buyers, too.
Now representatives of the housing industry are lobbying for another extension. Some experts, including Mark Zandi, chief economist at Moody’s Economy.com, who supported the earlier credits, think the time has come to let it go.
“It’s worn out its benefit,” he says. “If you extend it again, it isn’t going to do much, and what you’re doing is providing a tax break to folks who bought anyway.”
Source: The Wall Street Journal, Nick Timiraos (02/22/2010)
Wednesday, November 11, 2009
Charlotte-area home sales take off
By Stella M. Hopkins
Fueled in part by a hefty tax credit, Charlotte-area home sales jumped nearly 20 percent last month, the first gain in more than two years.
There were 2,210 houses, townhouses and condos sold last month through the Carolina Multiple Listing Services. That compares with 1,848 in October 2008, when the economy took a nosedive.
The hefty increase marks the first time since February 2007 that sales rose on an annual basis. That's the most robust signal yet of the industry's recovery but still leaves sales below the 2003 level.
The first time homebuyer's tax credit, just extended and expanded to existing homeowners, is likely to continue propelling sales.
As evidence of the Charlotte market's staying power, MLS pending sales were up one-third compared with a year ago, according to data recently released by the Charlotte Regional Realtor Association. That's the second month in a row of increases. Those sales represent signed contracts that haven't yet closed and are an important barometer.
Sales prices continued a downward trend, falling 9.5 percent from a year ago, to an average of $196,204. Foreclosures and other distressed sales are weighing on prices.
MLS transactions account for the bulk of area sales.
Fueled in part by a hefty tax credit, Charlotte-area home sales jumped nearly 20 percent last month, the first gain in more than two years.
There were 2,210 houses, townhouses and condos sold last month through the Carolina Multiple Listing Services. That compares with 1,848 in October 2008, when the economy took a nosedive.
The hefty increase marks the first time since February 2007 that sales rose on an annual basis. That's the most robust signal yet of the industry's recovery but still leaves sales below the 2003 level.
The first time homebuyer's tax credit, just extended and expanded to existing homeowners, is likely to continue propelling sales.
As evidence of the Charlotte market's staying power, MLS pending sales were up one-third compared with a year ago, according to data recently released by the Charlotte Regional Realtor Association. That's the second month in a row of increases. Those sales represent signed contracts that haven't yet closed and are an important barometer.
Sales prices continued a downward trend, falling 9.5 percent from a year ago, to an average of $196,204. Foreclosures and other distressed sales are weighing on prices.
MLS transactions account for the bulk of area sales.
Monday, May 18, 2009
HUD rescinds $8000 tax credit down payment
Earlier this week, HUD Secretary Shaun Donovan mentioned that the first-time homebuyer tax credit could be used as a down payment, but that may no longer be the case.
The mortgagee letter with the program details has since been removed from the HUD website; a call to the FHA confirmed this had occurred.
The employee I spoke with said the program is essentially pulled as of now, but nothing official has been released regarding the fate of the so-called tax credit advance.
So as it stands now, it appears as if the tax credit cannot be used for a down payment. It’s unclear why the FHA withdrew (or at least stalled) the program, though it could have something to do with perceived risk involved.
Allowing first-time homebuyers to purchase a property with nothing down is certainly high-risk, and the practice of using tax credits for down payments is fairly similar to the seller paid down payment assistance loans that nearly sunk the FHA.
Last summer, FHA Commissioner Brian D. Montgomery said the agency realized $4.6 billion in “unanticipated long-term losses,” largely due to an increased number of seller-funded loans in its portfolio.
The loans, which accounted for 14 percent of all FHA loans outstanding and 31 percent of all FHA foreclosures, are no longer available.
If they hadn’t been banned, the FHA would have needed appropriations of $2.5 billion to operate.
While I’m sure the program could help some borrowers in need, it could also lead to abuses, which may outweigh the positives.
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