Fall is here, and if you’re remembering your heating bills from last winter, you probably are already thinking about what you can do to cut that bill as the mercury drops.
Today, we will look at tax breaks that help save you money while you make your home a bit more energy efficient.
These tax breaks are in the form of tax credits and a bit of explanation is in order. You are aware of the usual tax deductions, mortgage interest, property tax, etc.
These deductions act to reduce your taxable income, and the net savings you see will depend on your marginal tax bracket. For example, $8000 of mortgage interest might save you $2000 in tax if you are in the 25% bracket, but only if you are able to itemize your tax deductions.
A tax credit, on the other hand, is a direct reduction of your tax bill, no itemizing required. There are two groups of items that offer this credit in 2013. Let’s look at what you save with each kind of energy efficient improvement to your home.
Non-Business Energy Property Credit
The first category is the Non-Business Energy Property Credit, which is worth 10% of the cost, up to a $500 lifetime limit on qualified energy efficient items installed in your home.
This category includes the cost of qualified insulation, windows, doors, and roofs. Windows have their own separate limit within this group, a maximum $200 credit.
The manufacturers of these products will have a ‘credit certification statement,’ which they’ll either show on their web site or offer along with the product.
Be sure to request this as you are making your purchase as not all products qualify.
You may have heard that these credits were due to expire in 2011. Fortunately, congress extended them through the end of 2013, so you still have a few months to go shopping for these items.
Procrastinating on this purchase will cost you, so let this tax credit motivate you to take action. Also note, this credit applies to improvements made to your main home, which must be located in the US.
Residential Energy Efficient Property Credit
The second category is the Residential Energy Efficient Property Credit. It offers a far more generous 30% credit with no dollar limit.
This credit applies to solar hot water heaters, solar power (the photovoltaic panels you are starting to see on roofs) and wind turbines.
If the credit is more than your total tax bill for the entire year, the remainder is carried forward to next year. The installation of these systems must be in the US, but can be at a home that’s not your main residence.
Each state has its own rebates which help to reduce your cost. Check out the Database of State Incentives for Renewables & Efficiency to see what your state offers.
With the cost of electricity rising, and the cost of solar panels continuing to fall, it makes sense to see if this is a wise purchase for your house.
The tax credit may tip the math to favor going solar or simply make a good deal better.
Don’t worry about figuring out your tax credits on your tax return, TurboTax will accurately calculate these tax credits, based on your answers to questions about your energy efficient improvements.
Do the math and see if going ‘green’ is not just good for the planet, but for your wallet, too.