Energy Star tax credits expiring Dec. 31

Energy Star tax credits expiring Dec. 31

If you've been thinking about updating your home to be more energy efficient, now is a great time to do so and take advantage of federal tax credits in the process.But be aware, the clock is ticking.As part of the fiscal cliff deal reached early this year, the U.S. Congress reinstated the Residential Energy Efficient Property Credit that expired at the end of 2011 to include Energy Star-qualifying products purchased in 2012 or 2013. The tax credits can be used for a variety of energy efficient home upgrades, including appliances, heating and cooling systems, windows, doors, roofs and insulation.The credits reimburse homeowners up to $500 of the cost of Energy Star-qualifying products.“It’s a real upgrade to what you have, and you’re getting a better deal for it,” says Steve McLeod, owner of highly rated Indoor Environmental Systems in Cary, N.C. “With climate change, the need is there [to have energy efficient products].”Qualifying productsAlex Alvarez, tax accountant at Business Management Services in Cincinnati, says most reputable companies that sell qualifying products will be able to certify what products qualify as energy efficient for the credit.“The consumer must ask for the receipt to show that these products qualify for energy tax credits,” Alvarez said.Energy Star-approved products that can qualify for the tax credits include:• Biomass Stoves• Heating, ventilation, air conditioning• Insulation• Roofs (metal and asphalt)• Water heaters• Windows and doorsMcLeod says it’s important to check for additional state tax credits, as well as rebates many utility companies are offering.“With all of the rebates that are available, there is potential for significant savings,” McLeod says.Details are importantIf you took advantage of the full tax credits available from 2006 to 2011, you’re not eligible this time around, even if you purchase a new qualifying product. However, if you only used $200, for example, of the credit during that original time period and made another qualifying improvement this year or last that was eligible for a $500 credit under the reinstated plan, you would still have $300 available.In order to receive the tax credits for various energy upgrades — including roofing, insulation, water heaters, heating and cooling equipment and windows and doors — you must claim the tax credit on your federal income tax form at the end of the year. Also, the energy efficient product must be for a home that you own and is your primary residence.The credit will either increase your refund or decrease how much tax you owe.Be sure to do plenty of research before you buy to ensure you understand which products qualify and which don’t. The Energy Star website offers details, but also check with your salesperson. He or she should be able to provide you with the Manufacturer’s Certification Statement that confirms it as a qualifying product. Those taking advantage of the credit need to fill out IRS Form 5695 and include a copy of the Manufacturer’s Certification Statement and their receipt. This is when having an established relationship with your accountant or tax professional can really come in handy. Your tax pro can identify potential qualifying purchases, confirm the validity of any credits you claim or plan to claim before you buy, and avoid any unnecessary IRS penalties for claiming a credit on a non-qualifying product. Energy savings good for your finances, the planetEnergy experts say the credit, coupled with the potential energy savings, creates an additional incentive for those already considering an energy efficient upgrade.It's important to note that in order to be eligible for the tax credits, the improvement must either meet Energy Star requirements or other established energy efficiency ratings. The savings associated with purchasing an energy efficient product can add up. Replacing an HVAC system with one that is more efficient, for example, can cut your annual energy bill by $200, depending on what part of the country you’re from, according to Energy Star.“You get a return on investment significantly faster [than with less-efficient units],” McLeod says. “And you’re reducing the cost of your energy and using the money to make payments on the appliance. An additional benefit is improved air quality.”

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