How to qualify
Thursday, October 29, 2009
How to qualify
-- Products installed and in use: You must "place into service" eligible home improvement products between Jan. 1, 2009, and Dec. 31, 2010. (See story on previous page for credits available through 2016.)
-- Existing residence: The items must be for an existing principal residence, though some purchases for second homes are eligible, including geothermal heat pumps, solar water heaters, solar panels and small wind energy systems. On new homes, tax credits are applicable only to geothermal heat pumps, photovoltaics, solar water heaters, small wind energy systems and fuel cells.
-- Receipts and other documents: You'll need copies of purchase and installation receipts, as well as the manufacturer certification statement, which is a signed document from the manufacturer certifying that the product or component you have installed qualifies for the tax credit. If your installer doesn't provide a copy of the statement, it often can be found on the manufacturer's Web site. Taxpayers should keep a copy of the statement in their records, even though they are not required to submit it with their tax returns.
-- Tax form: File the appropriate form with the Internal Revenue Service. For items placed into service in 2009, use IRS Tax Form 5695 (2009 version), which will be available in late 2009 or early 2010.
Why is a tax credit better than a tax deduction?A tax credit reduces your tax liability by the exact amount of the credit, says David Affeldt, a tax preparer and lawyer in Potomac. A tax deduction, on the other hand, lowers your taxes by the amount of the deduction multiplied by your income tax bracket. For example, if you're in the 25 percent tax bracket -- meaning you have a taxable income in 2009 of $67,900 to $137,000 -- and have a $1,500 tax deduction, your tax liability is reduced by only $375.
Who won't benefit from this?This tax credit is not refundable. If you owe the federal government less in taxes than the amount of the energy efficiency tax credit you earn, you will not receive a payment for the difference. This means if you have a tax liability of $300, for instance, and qualify for a $500 tax credit, you will not receive the $200 difference as a refund. "It will not reduce your taxes below zero," Affeldt says. It might make sense to spread your purchases over two years to get the full benefit of the credit.
Keep in mindIn 2009 and 2010, you can spend up to $5,000 on qualifying materials and some installation fees and receive a maximum tax credit of $1,500. But if you claim the entire $1,500 credit in 2009, you will not receive any additional benefit in 2010. The only way to get another tax credit is if you are buying any of the products eligible through 2016.
If you own your home jointly with someone to whom you are not married, you are each entitled to a tax credit based on the amount you spend individually to make home improvements. For instance, one person could claim windows, another could claim doors. The tax credit does not double (from $1,500 to $3,000) for married couples filing jointly. But married people filing separately could claim separate expenses and each receive a $1,500 tax credit. Consult your tax preparer about your individual situation.
http://www.washingtonpost.com/wp-dyn/content/article/2009/10/27/AR2009102704360.html