Take advantage of energy credits before it’s too late

November 22, 2011

The IRS reminds taxpayers that some common energy credits will expire at the end of this year. If you’re thinking about installing energy-efficient doors or windows, insulation, or a number of other common home improvements that can reduce your energy bill, make sure to do it before the end of the year so you can also reduce your tax bill.

Not all energy credits are expiring. Incentives for certain more significant improvements–solar panels, geothermal heat pumps, etc.–will remain in place through 2016.  A useful summary of which credits are expiring and which credits remain can be found here.

The IRS provides more detail in the announcement:

Special Edition Tax Tip 2011-08, November 21, 2011

The IRS reminds homeowners that they still have time this year to make energy-saving and green-energy home improvements and qualify for either of two home energy credits.

The Nonbusiness Energy Property Credit is aimed at homeowners installing energy efficient improvements such as insulation, new windows and furnaces. The credit is more limited than in the past years, but can still provide substantial tax savings.

  • The 2011 credit rate is 10 percent of the cost of qualified energy efficiency improvements. Energy efficiency improvements include adding insulation, energy-efficient exterior windows and doors and certain roofs. The cost of installing these items does not count.
  • The credit can also be claimed for the cost of residential energy property, including labor costs for installation. Residential energy property includes certain high-efficiency heating and air conditioning systems, water heaters and stoves that burn biomass fuel.
  • The credit has a lifetime limit of $500, of which only $200 may be used for windows. If the total of nonbusiness energy property credits taken in prior years since 2005 is more than $500, the credit may not be claimed in 2011.
  • Qualifying improvements must be placed into service to the taxpayer’s principal residence located in the United States before January 1, 2012.

Homeowners going green should also check out the Residential Energy Efficient Property Credit, designed to spur investment in alternative energy equipment.

  • The credit equals 30 percent of what a homeowner spends on qualifying property such as solar electric systems, solar hot water heaters, geothermal heat pumps, wind turbines, and fuel cell property.
  • No cap exists on the amount of credit available except for fuel cell property.
  • Generally, labor costs are included when figuring this credit.

Not all energy-efficient improvements qualify for these tax credits, so homeowners should check the manufacturer’s tax credit certification statement before they purchase. Taxpayers can normally rely on this certification statement which can usually be found on the manufacturer’s website or with the product packaging.

Eligible homeowners can claim both of these credits on Form 5695, Residential Energy Credits when they file their 2011 federal income tax return. Because these are credits and not deductions, they reduce the amount of tax owed dollar for dollar. An eligible taxpayer can claim these credits regardless of whether he or she itemizes deductions on Schedule A.

YouTube Videos:

  • Cut Your Energy Costs and Taxes – English | ASL

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Use this IRS tool to boost your paycheck in time for the holidays

November 7, 2011

Most people have too much tax withheld from their paychecks and wind up getting refunds when they file their tax return. But rather than waiting until spring to get your refund, wouldn’t you rather have that money now?

Well, you can. The IRS website has long offered a Withholding Calculator to help taxpayers fill out their W4 to have the right amount of taxes withheld from their paychecks. The nice thing about the withholding calculator is it takes into account your income and withholding to date. Since most people have too much tax withheld during the year, this means they can actually reduce their withholding for the last few paychecks and still not owe anything (or very little) at tax time.

If you want to boost your last few paychecks of the year (just in time for the holidays!), I recommend sitting down with the Calculator, last year’s tax return, and your most recent paystub(s). If you’ve got a fairly simple situation this year, you should be able to navigate the calculator to find out how much to adjust your withholding for the rest of the year. And you might just wind up with an extra thousand dollars in your pocket by year-end instead of waiting several months (while those credit card bills accrue interest). Just don’t forget to change your withholding back once the new year begins, or you might have a huge tax bill next year!