Tax Credit for Home Upgrades

Let Obama Help Pay for Home Upgrades
Updated on April 30, 2009.
Smartmoney.com

Making energy-efficient home improvements will not only help cut your cooling costs this summer, but can also provide a sizable break on your tax bill come tax season.
Thanks to the stimulus package, which passed in February, consumers can receive tax credits for up to 30% of the cost to make energy-efficiency improvements to their home, like adding insulation or new windows. The maximum $1,500 credit (one-time only) is a significant jump from the $500 offered in years past and will be available through 2010. (Many of the previous credits expired at the end of 2007.)
Both the tax and the energy savings could really add up, especially considering that the average household spends $1,000 a year on heating and cooling costs, says Ronnie Kweller, spokeswoman for the Alliance to Save Energy.
Still many of these purchases – like central air conditioners and a new Energy Star-rated roof – are so expensive that consumers must weigh the upfront costs with potential savings (often, installation costs won't count toward the credit either). Keep in mind that you won't be receiving that 30% tax credit for months after the project is probably complete. And, in some cases, such moves may not be worth it. Ideally, you want to replace the roof, A/C unit or insulation when they can no longer offer any savings on your cooling and heating bills and that usually happens when they reach the end of their lifespan, says Kweller.
Knowing which products qualify for the new tax credits can also be tricky. For example, previous tax credits were doled out to consumers who purchased Energy Star windows. After June 1, not every Energy Star-certified window qualifies, and the ones that do adhere to stricter eligibility requirements.
Here are four home improvements that can help you cut your summer energy costs and get Uncle Sam to pick up part of the tab:
Adding Insulation
Insulation is the cheapest home improvement that qualifies for the tax credits, says Karen Schneider, spokeswoman for Energy Star. And by installing it you could save up to 20% on your energy bills.
For the new insulation to qualify, it must meet the 2009 International Energy Conservation Code (check product labeling or call the manufacturer) and carry a two-year warranty (or be expected to last five years). Insulation at Home Depot and Lowe’s costs $10 (for a 32-foot roll) and $56 (for a 119-square foot roll), respectively.
If your home is less than five years old, you won't need new insulation, says Schneider. If your home is older, measure the thickness of the insulation in your attic. Insulation is measured in R-values, which stands for thermal resistance. It should range between R-30 and R-60 (for the northern parts of the country), she says. Every three to five R-values typically equal an inch of insulation, so R-30 could range between six and 10 inches, according to the Alliance to Save Energy. Also check the insulation in your crawl space or basement.
Click here for directions on installing insulation. Or hire a professional contractor, but installation won’t count toward the tax credit.
Purchasing New Windows and Doors
Before, tax credits for windows and doors were capped at $200. Now you can get up to $1,500. But that's only if those doors and windows meet certain criteria.
Windows, doors and skylights need a label from the National Fenestration Rating Council (NFRC) that says their U-factor – a measure of how well they’ll insulate the home from heat – is no more than 0.30. The label also needs to list a Solar Heat Gain Coefficient (SHGC), which measures how much of the sun’s heat penetrates into the home, of no more than 0.30.
Still, qualifying windows are expensive, with most ranging from $270 to $1,100, says Susan Roeder, spokeswoman for Andersen Windows and Doors, a window and door manufacturer based in Bayport, Minn. Doors can start at around $840 and go as high as $2,500.
Storm windows and doors can also qualify. The storm window's manufacturer certification statement lists the type of exterior windows, including single pane or clear glass, which it can be combined with to be eligible for the credit. Storm doors need to accompany a tax-credit-eligible wooden door without exceeding a combined U-factor of 0.30.
Installing Air Conditioners
Energy Star estimates the retail price and installation of a five-ton central air conditioner at more than $1,700. That’s hardly cheap, but luckily these systems only need to be replaced once every 10 to 12 years, says Schneider.
To qualify, central air conditioners need a Seasonal Energy Efficiency Ratio (SEER), which measures the efficiency of central air, of at least 16 and an Energy Efficiency Rating (EER), which tracks how it operates once the outdoor temperature reaches 95 degrees, of at least 13.
For a list of qualified A/Cs, click here.
Replacing the Roof
Assuming your roof is around 15 years old, replacing it with a metal or asphalt roof that meets Energy Star requirements will help keep your home cool by reflecting the sun’s heat -- especially if you live in a warm location, says Schneider.
This is a pricey project, however, running around $200 to $300 per square, says John New, a salesman at American Building Components, a manufacturer of metal roofing in Nicholasville, Ky. For a 25-square roof – a common size – it will cost $5,000 to $7,500.
But once you hit $5,000 you'll be eligible for the full $1,500 tax credit, says Schneider.
(Corrected April 28, 2009: As originally published, we stated the price of metal roofs using square feet. The correct measurement is in squares. One square equals 100 square feet.)

You Can Buy Real Estate with Your IRA or 401(k)

If you have a self directed retirement account you can use that money to buy real estate.

The real estate will be a position in your account the same as stocks, bonds, etc.

There will be no early withdrawal penalties but the property will have to be an investment and can not be a primary or secondary residence.

I found this out after listening to a representative from Entrust (self directed account plan administrator).

Some things of interest:
You can partner with other IRA's or with other people's personal funds.

All expenses are paid by your retirement account.

All income goes directly into your retirement account.

You can leverage your retirement account with a non-recourse loan.

To find out more go to www.TheEntrustGroup.com


Michael Lutz
Coldwell Banker
303-780-7573
michael.lutz@coloradohomes.com
Referrals are a large part of my business.
Please pass my name along to anyone that is buying or selling a home.
Please let me know if you are currently working/under contract with another broker.

Misconceptions About the Stimulus

Some useful information regarding the stimulus.



Misconceptions About the Stimulus
by Kimberly Lankford
Thursday, April 9, 2009
provided by Kiplingers Personal Finance

Since President Obama signed the economic-stimulus package into law February 17, I have received many questions about its provisions. And I've noticed that there are a lot of misconceptions about the plan. Here's the lowdown.
Misconception #1: Most people will get their stimulus money as a check this year.Instead of receiving a check from the government, most single taxpayers will see an adjustment to their tax withholding in their paychecks in 2009 and 2010, giving them about $45 extra per month for the rest of this year (married workers will receive an extra $65). If you're self-employed, you can adjust your quarterly tax payments to benefit from the tax credit. Then you will claim the credit when you file your 2009 tax return next spring, bringing your tax bill in line with your reduced payments.More from Kiplinger.com:
• Test Your Recession Survival Skills
• What the Stimulus Means for You
• 5 Smart Uses for Your Tax Refund The stimulus also provides a one-time payment of $250 to recipients of Social Security, Railroad Retirement and Veterans Administration benefits.(People who applied for any of these benefits for the first time after January 31 don't get the money; only those on the rolls in November and December 2008 and January 2009 are eligible.) You'll get the money electronically or by check, depending on how you receive those benefits. Retired government employees who don't receive Social Security will also get a $250 credit when they file their 2009 returns.
Misconception #2: The adjustment to withholding will have to be paid back when you file your tax return next year.Wrong -- the stimulus is actually a tax credit of 6.2% of taxable wages in 2009 and 2010, to a maximum each year of $400 for single taxpayers and $800 for married couples filing jointly. The credit is refundable, which means that you can still receive the full credit even if it is worth more than your total tax liability.Paychecks are being adjusted now to get more money into the economy faster. You'll claim the credit when you file your return next year, so your tax bill should adjust in line with the stimulus money (and you might get some extra money at tax time if your withholding wasn't adjusted enough to account for the extra credit during the year, which may happen for some married people in single-earner households).More from Yahoo! Finance:
• Boats Too Costly to Keep Are Littering Coastlines
• Opinion: Have We Seen the Last of the Bear Raids?
• AIG CEO, Some Staff Get Death Threats Over Bonuses
Visit the Banking & Budgeting CenterBut not everyone qualifies for the credit. It begins to phase out for single filers with adjusted gross incomes of $75,000 or higher, or $150,000 for married couples filing jointly, and it disappears entirely for single filers with AGIs of $95,000 or more, or $190,000 for joint filers.
Misconception #3: The first-time home buyer's credit needs to be repaid.You may not have to repay the credit, depending on when you bought the house.If you buy a house between January 1, 2009, and December 1, 2009, you could receive a credit for 10% of the home's purchase price, up to $8,000. This credit does not have to be repaid as long as you own the home for at least three years.If you bought a first home between April 9, 2008, and December 31, 2008, you are eligible for a tax credit of 10% of the home's purchase price, up to $7,500 -- but the credit must be repaid over 15 years, starting two years after you claim the credit. If you sell the home before you finish paying back the credit, the balance is due in full the year of the sale.The 2008 and 2009 credits begin to phase out if your modified adjusted gross income is more than $75,000 (or $150,000 if you're married filing jointly). The credit disappears entirely after your income reaches $95,000 if you're single, or $170,000 if married filing jointly. You are considered a first-time home buyer if you (and your spouse, if you are married) didn't own a primary residence in the past three years. The credit does not apply to rental property and vacation homes.
Misconception #4: You can't get the 2009 first-time home-buyer tax credit until you file your tax return next year.Actually, taxpayers who buy a first home in 2009 do not need to wait until they file their 2009 return (by April 15, 2010) to benefit from the credit. To get the money into the economy faster, the federal government is giving you a choice of claiming the first-time home-buyer credit on either your 2008 or your 2009 tax return.There's actually a way to benefit from the credit even before you buy your first home. If you plan to buy by the November 31 deadline, you can reduce your withholding on your paychecks right away. The increased take-home pay could help you with the down payment. File a new W-4 form with your employer to adjust your withholding. (And remember to re-adjust your withholding again next year.)If you have already filed your 2008 return, you can use Form 1040X to amend it. If you purchase a first home after the 2008 tax-filing deadline of April 15, 2009, you can still claim the credit on your 2008 tax return either by requesting a six-month extension for filing your return (which doesn't extend the deadline for paying any taxes owed) or by filing an amended return.

ALWAYS CONSULT WITH YOUR TAX ADVISER

-- Michael Lutz
Coldwell Banker
303-780-7573
michael.lutz@coloradohomes.com
Referrals are a large part of my business. Please pass my name along to anyone that is buying or selling a home.
Please let me know if you are currently working/under contract with another broker.