Americans are expected to spend an annualized $53.8 billion on home improvements in the third quarter of 2014 —a 9.9 percent increase over the third quarter of 2013, according to a Joint Center for Housing Studies report.
If you are planning on “going green” this year, you may be eligible for some tax breaks. Federal and state renewable energy programs offer tax credits to homeowners who perform energy-saving upgrades. These programs encourage energy-efficient design and offer an effective way for states to achieve local renewable energy goals. Some incentives are designed to take advantage of regional opportunities, such as a surplus of wind energy or frequent sun exposure. By improving your home’s energy efficiency, you’ll not only enjoy tax credits and other financial incentives, but also reduce your family’s contribution to air pollution and global warming.
Tax incentives and requirements differ by state. Check the U.S. Department of Energy website to find information for your area (see Resources). Tax laws are always changing, so it’s a good idea to consult your tax professional to see what savings you can get from Uncle Sam. Here are some benefits you may enjoy:
Alternative Energy Improvements
The federal government offers tax incentives to cover the high cost of complex eco-friendly upgrades. These credits apply to both new and existing construction and cover both your current home and any new construction. They apply to work completed by Dec. 31, 2016, and cover 30 percent of the total cost, with no upper limit. This program includes geothermal heat pumps, wind turbines and solar energy systems. All of these upgrades require a major capital investment, so higher tax credits may help offset some of these costs. Federal tax incentives also cover up to 30 percent of the cost of hydrogen fuel cell systems installed through 2016. Homeowners must install at least 0.5 kw of capacity to receive this credit.
Plug-in Electric Drive Vehicle Credit
ARRA modifies this credit for qualified plug-in electric drive vehicles purchased after Dec. 31, 2009. The minimum amount of the credit for qualified plug-in electric drive vehicles, which runs through 2014, is $2,500 and the credit tops out at $7,500, depending on the battery capacity. ARRA phases out the credit for each manufacturer after they sell 200,000 vehicles.
Treatment of Alternative Motor Vehicle Credit as a Personal Credit Allowed Against AMT
Starting in 2009, ARRA allows the Alternative Motor Vehicle Credit, including the tax credit for purchasing hybrid vehicles, to be applied against the Alternative Minimum Tax. Prior to the new law, the Alternative Motor Vehicle Credit could not be used to offset the AMT. This means the credit could not be taken if a taxpayer owed AMT or was reduced for some taxpayers who did not owe AMT.
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