New Homeowner’s Tax Credit – Part Trois

Well, well, well. The federal government has extended the new homeowner's tax credit to cover purchases that close on or before June 30, 2010. They have also added another important date--you must sign the contract to purchase the home by April 30, 2010. I guess a little more of the stimulus money will be going to everyday people.

The Feds have also changed the rules a bit. You still must have not owned a home for at least three years to qualify for the full $8,000 new homeowner's tax credit. However, the amount of income you can have to qualify for the full credit was raised to $125,000 if you are single, and $225,000 if you are married and file a joint return.

They also added a new wrinkle. If you have owned a home for five of the previous eight years you can qualify for a credit of up to $6,500. This expands the pool of potential house buyers substantially.

Now for the bad news. The new homeowner's tax credit is not retroactive. The new rules are effective for sales that happened on or after November 6, 2009. All those folks who have owned a home for more than five years and closed on their new home on November 5, 2009 are out $6,500. The same goes for buyers who exceeded the income limits and thus did not qualify for the new homeowner's tax credit earlier in 2009.

New Homeowners Credit Revisited Again

The new homeowner’s credit mentioned a couple of times in my previous blogs expires in about two months. To take advantage of this credit you must actually close on your new house by November 30, 2009. You also must fit the IRS definition of being a new homeowner, which is you must not have owned a home in the three years prior to the closing on your new home.

With the slow pace of mortgage approvals you need to identify the house now and get the mortgage process moving to be able to close by November 30th. We refinanced our house starting in January of this year and did not close until the first week of April. A three month turnaround is not acceptable if you want to take advantage of the credit. $8,000 is a lot of money to lose out on.

See my blog of February 25, 2009 for more information on this credit.

Wind Energy Credits

Energy Credits - Continued

Wind Energy Credits

Energy from the wind has been around for centuries. Ships used to sail the ocean using the wind. It has been used to pump water in Holland where it helped keep the cities dry behind the dikes. Recently the wind has been captured to generate electricity.

You might be familiar with the Cape Wind project in Nantucket Sound and the battle that has been raging for years over whether or not it should be built. From a purely economic and energy perspective, it will help the Massachusetts economy and move us toward energy independence.

A few years ago I was traveling in the west and was awed by a wind farm that just appeared in the desert. There had to be a hundred or more windmills that did not desecrate the desert as far as I am concerned.

A tax credit is now available for small wind turbines that are used for a residence. Thus, you can install a wind turbine and get a credit for 30% of the cost of the unit. It can provide electricity for your house and could generate electricity that you might be able to sell to the electric company. The most common problem with wind turbines is having a site that gets enough consistent wind to justify the unit. A 30% credit is useless if you are limited in how much you can use the turbine.

Like the other energy credits, you use Form 5695 to claim this one. This is not a refundable credit so you need to have a substantial tax liability to take advantage of the credit.

Here are some links for you:

This link could help you understand wind energy for your home. Remember this is an industry group so all the downsides to wind energy may not be presented.
http://www.awea.org/faq/rsdntqa.html

Here is a site that could help you understand purchasing a wind system as well as other energy alternatives.
http://www.homepower.com/home/

Here is a link to a government website where you can search for grants.
http://www.grants.gov/

Substantial Energy Credits — Continued

Geothermal credits

Quote from the IRS…

“Residential energy efficient property credit. Beginning in 2009, there is no limitation on the credit amount for qualified solar electric property costs, qualified solar water heating property costs, qualified small wind energy property costs, and qualified geothermal heat pump property costs…”

Geothermal energy systems are based on the earth being a constant temperature once you get about 10 feet below the surface of the ground. If you can capture that heat, and run it through a heat exchanger, you can heat your home for essentially the cost of running a fan. You also can cool your home in summer with the same system and get hot water as a bonus. Couple it with a solar energy system to generate the electricity and you can substantially reduce your carbon footprint. It works best with a forced hot air heating system.

All in all this is not a bad deal.

Last year I talked with a company that installs residential geothermal energy systems. Part of my conversation with them was a question about tax credits and the response was “there aren’t any”. That changed in February when the stimulus package was signed. Now you can get 30% of the installation cost of a geothermal energy system back in the form of a federal tax credit. And there is no limit how much your credit can be. Just remember you still pay for 70% of the cost of the system.

Like the other energy credits, you use Form 5695 to claim this one. This is not a refundable credit so you need to have a substantial tax liability to take advantage of the credit.

Here are some links that explain more:

This one is from the Union of concerned Scientists:
http://www.ucsusa.org/clean_energy/technology_and_impacts/energy_technologies/how-geothermal-energy-works.html

This is from Wikipedia:
http://en.wikipedia.org/wiki/Geothermal_heating

Here is a link to a government website where you can search for grants.
http://www.grants.gov/

There are plenty of additional links on Google or any other search engine.

New Solar Energy Credits

The new stimulus law has expanded the credit available for alternative energy improvements. This incorporates solar, wind, and geothermal investments. The credit is 30% of your cost for the systems. The tax credit can cover any home used as a residence by the taxpayer, but it does not have to be your principal residence. So your vacation home can qualify.

This blog will cover the solar credit which includes the generation of electricity, heating water, and some resources for information on solar power.

As I mentioned, the credit is 30% of the cost of the solar system. The system must be installed by December 31, 2016, so you have plenty of time to put the system in place. You can use it for generating electricity or hot water.

In addition many states offer a credit for energy improvements including solar power. Here is a link to a database that details these credits: http://www.dsireusa.org/

Try Wikipedia for some general information on solar power. Here is that link: http://en.wikipedia.org/wiki/Solar_power

The American Solar Energy Society is an industry association which provides information on solar energy. It has 12,000 members from solar professionals to grass root enthusiasts. They are located at http://www.ases.org/

You can Google “Solar Power” and get about 30,000,000 hits. That should keep you busy for the weekend.

Residential Energy Credits

Now you see them, now you don’t.  Wait!! Now you see them again.

Those elusive homeowner energy credits are back.  They were available until the end of 2007 and then disappeared in 2008 only to return with the various stimulus packages in 2009.

The energy credit is fairly simple:  You get a credit on your federal income taxes of 30% of the cost of qualified energy products you install in your home in 2009 and 2010.  Qualified products include new windows and insulation, as well as energy efficient heating and air conditioning systems.  The items installed must meet new higher standards of energy efficiency.  The credit applies to the cost of the product but not to the cost of labor for of the installation. 

The maximum total credit you can claim is $1500 (or 30% of $5000). The credit can be used only once, so you cannot claim $1500 in 2009 and then again in 2010. You file form 5695 with your 2009 or 2010 tax return.  This is not a refundable credit, which means that if you owe $1000 in income taxes and qualify for a $1500 credit, you will not get a check for $500 from the IRS.  It also cannot be applied to other taxes such as the self-employment tax.

The IRS has not provided a whole lot of guidance on this credit yet.   Based on various sources, the credit applies only to home improvements and not the construction of a new home.  Other details may change as the year progresses.

A final note:  The manufacturer must give you certification that the property satisfies the standards set in the new law.  Be sure to keep the certifications as well as the receipts for the cost of your products.

 

Energy TAx Credits

This blog is the start of a series on the energy tax credits enacted in February 2009.  I will be discussing the residential energy credits for insulation and new windows, a new credit for geothermal heating and cooling, solar credits, and even home sized wind turbines.  I will also discuss electric car credits.

Ah the wonders of the internet!!  This was posted from San Francisco

New Homeowners Tax Credit – Revisited

This is an update to my blog of January 13th on the 2008 New Homeowners Tax Credit.

There have been changes made in the Economic Stimulus Plan concerning the new homeowner credit. Here are the highlights of the new law:

The credit is now available if you close on your home between January 1 and November 30, 2009.

You cannot have owned a home for three years prior to closing on your new home.

The credit amount is 10% of the purchase price of the home to a maximum of $8000. So if you buy a house for $50,000, you only get a credit of $5,000. Previously, the maximum was $7,500.

You do not have to pay the credit back if you buy a house in 2009. If you qualified for the $7,500 credit by purchasing a home in 2008, you still have to pay the credit back over 15 years.
You must pay the credit back if you sell the home within 3 years.

The tax credit is refundable. This means that if your total taxes are $3000, the IRS will send you a check for $5000 ($8,000 credit less the $3,000 you owe in taxes).

The credit may not exceed a total of $8000. If two individuals buy a house together, the $8,000 is divided between them rather than each getting a credit.

You cannot buy the house from a related party, like your parents or grandparents.

You can claim the credit on your 2008 tax return even if you bought the house in 2009.

You start losing the credit when your income exceeds $75,000 if you are single or $150,000 if you are married.

How do you claim the credit? File Form 5405 with your 2008 tax return. You can still claim the credit If you are buying a home after your filed your 2008 tax return. Just file an amended return to claim the credit.

Here is where some planning comes in handy. If you owe the IRS, file an extension. After you buy the home, file the return with the credit, and avoid having to write the IRS a check. Suppose you owe the IRS $2,000 and close on your house in May of 2009. File an extension (Form 4868) for your tax return. Then, after you have closed on the house, file the return with the $8,000 credit. You get a check for $6,000, the $8,000 credit less the $2,000 you owed in taxes. This is a great deal and you should take advantage of it. Call it your own personal bailout.

The law was recently signed. The details are still being worked on and the IRS has not issued any guidance. So keep an eye on the news and this blog as things develop.

Comments anyone?

The Economic Stimulus Payment

Did you get your stimulus payment in 2008, the check for $600 per person you were supposed to receive? Don’t despair if you haven’t, you can still get it.

There are a couple of reasons you might not have gotten your rebate in 2008. Your income might have been too high to qualify or you might have filed your tax return late. You are out of luck if your income was too high. That is not bad news. It is better to have a high income than to get a few dollars from Uncle Sam. If your return was late you can get the money by using the Rebate Recovery Credit on your 2008 tax return. Just remember to file the return. The earlier you file the sooner you will have the money.

Suppose you got your stimulus check in 2008. You could be eligible for more if any of the following has occurred in the past year:

* Your income went down from 2007 to 2008.
* You added a child as a dependent during 2008. This could be by adoption or birth.
* You became legally independent in 2008. This happens to people who graduate high school or college.
* You got a Social Security number in 2008. This would apply if you received your green card in 2008 and then got your Social Security number.

How do you calculate the additional amount? Here’s the good news: the IRS will calculate it for you if you wish. Just file your return and wait for the check.

Again you must file a return for 2008 to collect your money.

Check out this link to the IRS web site if you want more information:
http://www.irs.gov/newsroom/article/0,,id=186065,00.html?portlet=7

An Alleged Tax Credit

This year, Congress passed a bill that gives a $7500 credit to first-time homebuyers. This credit is available if you closed on your home after April 9, 2008 and before July 1, 2009. Your income must be less than $95,000 if you are single and $170,000 if you are married to take advantage of the credit.

A first time homebuyer is someone who has not owned a home for three years. (Only in America can someone who has previously owned a home be declared a first time homebuyer.) The credit is taken on your 2008 or 2009 tax return and can be refunded - which means that if you bought a home and owe no federal income tax, the IRS will send you a check for $7500 (just because they are so wonderful).

Now for the alleged part…this is not really a tax credit. You have to pay it back over a fifteen-year period. That’s comes out to $500 per year. It’s a loan rather than a credit. The bonus is you do not have to pay any interest on it.

Should you take this money? Absolutely! You should think of it as your own personal bailout. You have $7500 in your pocket now and have 15 years to pay it back. If you put $7500 in the bank you will get a magnificent 0.5% interest on it - $35 in the first year - enough for a few cups of coffee. You can use this for anything you want, but the best use of this money is to pay down your mortgage.

More detailed information is available at

2/7/09 I had to update the link because the original link changed.

http://www.federalhousingtaxcredit.com/faq.php