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Money Matters – Mid-Year Tax Planning: Residential Energy Tax Credit

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420x316-grad-lee Dee Lee
Dee Lee is a Certified Financial Planner who received a diploma in...
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BOSTON (CBS) – Congress pared back the energy tax credits for this year. But there are still some breaks for homeowners.

If your central air conditioning died from over work this month, you can get some help from Washington to replace it with a more efficient unit. But not as much as last year. Maximum $300 for the AC.

The Home Improvement Tax Credit for 2011 will be 10% of the cost of the home improvement, up to a maximum of $500 and it expires December 31. Improvements must be on an existing home & your principal residence. New construction, second homes and rentals don’t qualify. Some items have reduced maximum tax credits now as well.

The maximum tax credit overall is $500. If you’ve already received credits totaling $500 or more from 2005-2010, you will not be able to claim the credit in 2011.

Some of the eligible products include:

  • Energy efficient doors and windows. Installation costs are not eligible for the credit. Energy Star windows have a max of only $200.
  • Water Heaters. Credit includes installation costs; some restrictions for energy efficiency apply. $300 max credit.
  • Insulation, whether spray foam, fiberglass, or blow-in cellulose, must meet the International Energy Conservation Code requirements. Installation is not covered.
  • HVAC components, including advanced air handlers, heat pumps, central A/C units, boilers, propane, and gas furnaces. Tax credits does include installation costs. $300 credit limit, and furnaces must be 95% efficient.
  • Biomass Stoves. $300 credit limit.
  • Metal and asphalt roofs. Credit does not include installation costs.

Your home improvements must be in place for the tax year, for which they are claimed. You’ll need to file Form 5695 along with your 1040 next year.

You need to get a “Manufacturer Certification Statement” showing the improvements you had done. You don’t need to send it in with your tax return, but you’ll need to keep it in your tax file along with the receipt just in case the IRS audits you. You’ll want an itemized receipt that lists product costs separate from installation costs.

Geothermal heat pumps, solar water heating, photovoltaic systems and small wind turbines could qualify for a tax credit equal to 30% of the cost and installation and you have through December 31, 2016 to install them. And you are not limited to your principal residence. It could be used for the second home on the cape.

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