The IRS will allow tax credits for certain home improvements
AutoInstall a new water heater, get IRS tax credit
Heating hot water in your home costs a lot of money and can account for up to 25% of your electric or gas bill. Installing a new, efficient water heater can save you a lot of money over time. A water heater that qualifies for Energy Star certification may be eligible for a tax credit of up to $300.
For the IRS, home improvements are considered personal expenses. You are not allowed to claim these expenses as tax deductions. However, if you are installing or making health-related home improvements, the IRS often allows you to claim these costs as medical expenses. You also qualify for tax credits when you install certain qualifying energy-efficient home improvements.
Energy Star lists energy-saving equipment that qualifies for the IRS tax credit
According to EnergyStar.gov, the IRS allows tax breaks for qualified improvements in five categories, one of which is non-solar water heaters. These water heaters can run on gas, propane, or electricity, and include tankless water heaters. The tax credits are available only when you make qualified improvements to your primary residence located in the US and will expire at the end of this year. To qualify for a 2014 federal tax credit for a new water heater installed in your home, the equipment must have been installed in your home before December 31, 2013.
Qualifying items include windows, doors, metal roofing, insulation, air conditioning, tankless water heaters, automobiles, solar water heating, solar power, and fuel cells. Check with EnergyStar for details.
Additional tax breaks are available for other qualified home improvements
You can also get a tax credit of up to $500 if you make certain qualified home improvements that increase the energy efficiency of your home. A tax credit is defined as money deducted from the amount a taxpayer owes the IRS. The tax credit is typically 10%, up to a total of $500, for the purchase and installation of certain items, such as a new water heater, central air conditioning, insulation, windows, or roof.
Under the old tax law, homeowners could claim a tax credit limited to just 10 percent of the cost of the upgrade, up to a maximum of $500. Under the new tax law, taxpayers who spend $800 on a new, efficient water heater, $1,000 on insulation and $2,000 on windows could reduce their 2013 tax bill by $1,140. For more information, see IRS Form 5695, Residential Energy Credits.
The residential energy property credit is non-refundable. A non-refundable tax credit allows taxpayers to reduce their tax liability to zero, but not below zero.
Free help with your tax return
The IRS has several places for taxpayers to get free help preparing their tax returns. The Volunteer Income Tax Assistance (VITA) program provides assistance to low-income individuals, the elderly, individuals with disabilities, and taxpayers with limited English proficiency. The Tax Counseling for the Elderly (TCE) program helps taxpayers age 60 and older with their tax returns. Most VITA and TCE sites offer free e-filing, and IRS-certified volunteers will provide you with details about what credits and deductions are allowed in your individual case. Additionally, some VITA and TCE sites allow taxpayers to prepare their own return with the help of an IRS-certified volunteer.
To find the nearest VITA or TCE site, use the VITA Locator Tool on IRS.gov or call 1-800-906-9887.
* Consult a professional tax advisor, accountant or attorney for more information on taxes and tax credits.
* Saville Katz is Director of Content Creation and Syndication at Mr. Speedy Plumbing & Rooter Inc.