Money Matters/ Green housing updates can save on taxes
Matt and Sylvia wanted to move. With their two children sharing a room, a bigger home seemed in order. Unfortunately, the housing market in their area was very slow -- so they adjusted their perspective.
Their 60-year-old single-family home needed some upgrades, and the couple wanted to make them as Earth-friendly as possible. When Matt and Sylvia mentioned their summer rehab plans to their financial advisor, she noted that energy-efficient home upgrades would be good not only for the planet, but for their tax bill -- potentially.
One of the breaks Matt and Sylvia could look into, their advisor began, was the Residential Energy Property credit. In fact, it was right up their alley because the credit was specifically designed for homeowners making qualified energy-efficient improvements to existing homes.
The credit covers a percentage of the cost of all qualified energy-efficient improvements. Examples include replacing their current HVAC systems, swapping out exterior windows and switching insulation products.
For 2011 purchases, the tax break's aggregate amount is capped at $500. The general rule is that it's limited to 10 percent of eligible expenses, though there are additional limits. For instance, the credit for windows is limited to $200 of the $500. Further, to the extent that you've claimed the credit in a prior year, you cannot claim it for 2011.
If the couple wanted to take their green improvements to a new level, their advisor went on, how about solar power? The Residential Energy Efficient Property credit was devised to assist taxpayers paying for qualified residential alternative energy equipment, such as solar electricity equipment and hot water heaters--even wind turbines and geothermal heat pumps. This credit equals 30 percent of the cost of eligible property, and it runs through 2016.
Driving home the point
Matt and Sylvia's advisor also noted that they could make an energy-related improvement to their garage -- or, more specifically, what goes in it. The catch: they'll need to give up plans to purchase another gasoline-powered vehicle.
The tax code offers a credit for qualified plug-in electric drive motor vehicles. Depending on battery capacity, the credit ranges from $2,500 minimum up to a maximum of $7,500. It runs through 2014 and phases out for each manufacturer after they sell 200,000 vehicles.
Not only can Matt and Sylvia make some green renovations to improve their home while saving on taxes. By adding energy-efficient upgrades now, they may enhance its resale value when their local real estate market picks up.
Norm Grill, CPA, (N.Grill@GRILL1.com) is managing partner of Grill & Partners, LLC (www.GRILL1.com), certified public accountants and consultants to closely held companies and high-net-worth individuals, with offices in Fairfield and Greenwich, 254-3880.