Like a phoenix from the ashes, the Residential Energy Tax Credit was given new life with the Taxpayer Relief Act of 2012. The credit had been previously axed for 2012. The good news is that you can take this credit in 2013. The bad news is that it expires, yet again, at year’s end.
To refresh your memory, the Residential Energy Tax Credit is a credit of up to 10 percent of qualified expenses up to $500.00. The $500.00 maximum is the lifetime limit that one taxpayer can take. If you previously took the maximum credit from 2006 – 2011, you are not allowed to take the credit again.
Qualified expenses for the tax credit include: energy efficient door, windows, insulation, and other energy efficient expenses. Before you go out and buy something, you should consult your tax advisor to see if it qualifies under the credit.
In addition to the equipment that you purchased, installation costs can be included in the computation of the credit. For example, if you bought energy efficient windows for $1,500.00, and it cost $1,000.00 to install the windows; your total qualified expenses would be $2,500.00. The credit amount would be $250.00 ($2,500.00 x 10%).
Tax credits are typically better than tax deductions. For example, if you had $50,000.00 of income, a tax liability of $5,000.00, and a tax deduction of $500.00; the tax deduction would lower your tax liability by $50.00. So your new tax liability would be $4,950.00. Using the same example, if you had a $500.00 tax credit, your new tax liability would be $4,500.00. Tax credits are dollar for dollar credits against your tax liability.
As I previously stated, if you want to take advantage of this credit you need to act right now. The credit expires December 31, 2013.
For more information visit www.smalleynco.com
If you have any questions you can email Craig W. Smalley E.A.
Author of the books: It Starts With an Idea – Tax Tips for Small Businesses available on Nook and Kindle, The Ultimate Real Estate Investor Tax Guide, available on Nook and Kindle, The Complete Guide to the New Tax Law – American Taxpayer Relief Act of 2012 available on Nook and Kindle, Everything You Wanted to Know about the IRS – Audits, Appeals and Collections available on Nook and Kindle, Tax Avoidance is Legal! The Complete Guide to Individual Income Tax available on Nook and Kindle, The Complete Guide to the Affordable Care Act’s Tax Provisions available on Nook and Kindle, The Complete Guide to Retirement Plans for Small Businesses available on Nook and Kindle, The Complete Guide to Estate, Gift and Trust Taxation, available on Nook and Kindle, and The Complete Guide to Hiring an Accountant, available on Nook and Kindle.