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Summer Home Improvement Projects Could Equal Big Tax Break

June 26th, 2013 by Filed under: Tax Credits & Deductions

summer home improvement tax deductionsWith summer just kicking off it’s the perfect time to tackle those home renovation and repair projects on your to-do list. Making a few simple improvements can boost your home’s efficiency, lower your energy costs and it can also put more cash in your pocket at tax time. Whether you’re planning a simple DIY project or a large-scale home renovation, you may be able to save money by taking advantage of several key tax credits.

Non-Business Energy Property Credit

If you’re planning to upgrade your windows, install a new roof or improve your home’s insulation, you could be eligible for the Non-Business Energy Property Credit. This credit expired in 2012 but was renewed through the end of 2013 thanks to the American Taxpayer Relief Act. You can receive the credit if you make improvements to an existing home that’s your principal residence but not rental homes or new construction. Improvements must be completed by the end of the calendar year, so if your renovation project isn’t finished before January 1, 2014 you won’t qualify.

The amount of credit you can receive depends on the type of improvements you’re making. If you’re installing energy-efficient roofing or insulation, the credit is good for 10 percent of the cost up to $500. If you’re planning to install a biomass stove, a new heating and cooling system, an energy-efficient water heater or energy-efficient windows, doors and skylights the amount of the credit ranges from $50 to $300. You’ll need to complete Form 5695 to claim the credit and obtain a credit certification statement from the manufacturer for your records. Keep in mind that if you’ve already claimed the maximum credit available for prior tax years, you won’t be able to claim it again for any improvements you make in 2013.

Residential Energy Efficient Property Credit

Switching your home to an alternative energy source can dramatically reduce your utility costs and it can also qualify you for a significant tax break. The Residential Energy Efficient Property Credit is good for 30 percent of the total cost of the equipment you install. There’s no upper limit on the amount of credit available and if the amount of your credit exceeds the amount of tax you owe, you can carry forward any unused portion to next year’s tax return.

The credit is good if you’re making improvements to a principal residence or a second home but not for rental properties. There are no restrictions on the type of structure, which means you can claim the credit if you live in a mobile home, condo or a co-op. The credit, which is available through the end of 2016, applies to geothermal heat pumps, small wind turbines and solar energy systems, including solar panels and solar water heaters. The equipment you install must meet specific energy requirements to qualify, which can be found on the Energy Star website. You can claim the credit using Form 5695. A separate credit is available if you’re considering installing a fuel cell and microturbine system. This credit is still good for 30 percent of cost but can only be claimed for a maximum of $500. In addition, it’s only good for systems installed at your principal residence. The credit is also good through the end of 2016.

Investing in your home’s efficiency can sometimes mean a significant out-of-pocket cost but the cost is easily recouped through your energy savings. Taking advantage of tax credits can make key home improvements even more affordable in the long run. For more information on how you can save using home improvement tax credits, take a look at Publication 530, Tax Information for Homeowners on the IRS website.


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