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I've gotten a few questions about the tax credit program for home improvements. I know it's a bit cumbersome to decipher The American Recovery and Reinvestment Act of 2009, so I thought we'd take some time to put out a list of Frequently Asked Questions on the topic as it relates to heating, air conditioning, air quality and plumbing. I hope this information helps you to make the best decision regarding your purchase of energy-efficient home improvements. If you have any questions about any of this please don't hesitate to call me.
ABOUT THE TAX CREDIT
How does the new economic stimulus affect me?
The American Recovery and Reinvestment Act of 2009 (ARRA) combines spending and tax incentives designed to invest in road and energy infrastructure, and increasing energy efficiency and performance of America’s homes and buildings. The law makes important changes to existing tax credits for qualified home improvements of higher efficiency heating, air conditioning and water heating equipment.
What’s the difference between a tax credit and a tax deduction?
A tax credit applies against the taxpayers’ liability. A tax deduction applies against a taxpayer’s income, lowering the adjusted gross income and possibly moving the taxpayer to a lower tax bracket.
How do I claim the credit?
The IRS has directed taxpayers to use Form 5695 to claim the credit. Taxpayers are also instructed to keep complete records of their installation and home improvements.
What is the amount of the new tax credit?
For the qualified home improvements, homeowners may be able to claim tax credits equal to 30% of the installed costs, up to a total of $1,500.
What is the time frame for the new tax credits?
The new tax credits are retroactive to January 1, 2009, and expire on December 31, 2010. The $1,500 limit is for all improvements made during the two year term, not $1,500 each year.
Can I claim $1,500 in tax credits for improvements made in 2009 and again for improvements in 2010? No. Homeowners may only be eligible for a total of $1,500 in tax credits for improvements made in the combined two year period of 2009 and 2010.
What happens if the 30% of the installed costs is less than $1,500?
The homeowner can “bank” the remaining available tax credit for other qualified improvements. Any single installation that costs more than $5000 will instantly reach the $1,500 limit.
Does the tax credit apply to the cost of the equipment or equipment plus labor?
The credit applies to the installed costs of the qualified equipment, which includes labor.
QUALIFYING FOR THE TAX CREDIT
What can I do take advantage of the new energy tax incentives?
Homeowners can receive a substantial tax credit for home efficiency improvements on new high efficient air conditioners, heat pumps, furnaces, boilers and water heaters. Additionally, new high efficiency windows and additional home insulation qualify.
Are the tax credits different for geothermal heat pumps?
Yes, homeowners who install geothermal heat pump systems may be able to claim up to 30% of the installed costs in tax credits in the year the system is placed into service. However, there is no dollar limit to the credit on geothermal heat pumps. The geothermal tax credit also has a longer term, from January 1, 2009 and expires December 31, 2016.
What if I install a furnace that meets the 95% AFUE standard, but with a central air conditioner below the standard? Can I still claim the full $1,500?
Homeowners can claim 30% of the final installation costs up to $1,500 associated specifically with the 95% AFUE furnace. Should the installation costs associated with the furnace not reach $5,000, 30% of the installation cost can still be claimed and the difference between that amount and the $1,500 cap can be applied to any other qualifying improvements.
Can I use the entire $1,500 tax credit on a single qualifying home improvement?
Yes. Previous per-appliance caps that limited homeowners to just $150 for a high efficiency furnace or $300 for a high efficiency central air conditioner or heat pump have been removed.
What if I previously claimed tax credits in 2006 or 2007?
Homeowners that previously claimed tax credits in 2006 or 2007 are eligible to claim the full $1,500 limit.
How do I know which specific equipment or improvements qualify for the tax credits?
There are a wide range of products available that qualify for the full tax credits. Schedule a free appointment for a FREE consultation with The Furnace Man by calling us at 303.770.4808
Can I claim the credit for improvements to a second home?
No. The tax credit is only available for improvement to the taxpayer’s primary residence.
Can modular or mobile homeowners qualify?
Yes. As long as the improvements meet the qualifying criteria and the homeowner’s primary residence they may claim the tax credit.
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2) Clean Combustion Chambers
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4) Clean And Adjust Pilot Lights.
5) Adjust Combustion Air.
6) Lubricate As Needed.
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13) Check For Faulty Wiring.
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