House to House: Determine eligibility for, claim 2012 energy tax credits

Today’s column was written by Donna Fuscaldo. For more than a decade, Fuscaldo has written about personal finance for Dow Jones Newswires, the Wall Street Journal, and Fox Business News. Fuscaldo is currently a freelance writer with her own home office.

 

The feds have resurrected, through 2013, $500 tax credits for energy-efficient home improvements, which had expired in 2011. If you upgraded one or more of the following systems in 2012, you may be eligible to take a tax credit on your 2012 return:

• 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, but 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.

 

LIMITS

There are some limits on Internal Revenue Service energy tax credits besides the $500 max:

• Credit only extends to 10 percent of the cost (not the 30 percent 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, 2010 and 2011 combined, you’re not entitled to any more money for energy-efficient improvements in the above seven categories. But if you took $300 back then, for example, you can get up to $200 in 2012.

• With some systems, your cap is even lower than $500 (see list below).

• $500 is the max for all qualified improvements combined.

 

SYSTEMS CAPPED BELOW $500

No matter how much you spend on some approved items, you’ll never get the $500 credit — although you could combine some of these:

• 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. Visit www.EnergyStar.gov for the details.

 

INSTALLATION MAY BE COVERED

Tax credits cover installation — sometimes.

The 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 is covered for biomass stoves, HVAC and non-solar water heaters.

Installation not covered for insulation; roofs; and windows, doors and skylights.

 

HOW TO CLAIM YOUR CREDIT

• Determine if the system you installed is eligible for the credits. Go to Energy Star’s website for detailed descriptions of what’s covered; then talk to your vendor. The site may not have been updated by the Department of Energy.

• 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.

 

NOTE: 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.

 

Visit HouseLogic.com for more articles like this. Reprinted from HouseLogic.com with permission of the National Association of Realtors.

 

House to House is distributed weekly by the Arkansas Realtors Association. For more information on homeownership in Arkansas, visit www.ArkansasRealtors.com.