By: Corry Hunter, CPA
The heat of summer is here! As the temperatures rise, so will your utility bills. Federal tax credits are still available, but outside solar, the credits may not be enough to make you want to run out and buy a new air conditioner.
Tax savings are great, but to accountants, “cash is king.” In the desert, most of us look for the energy efficiency tax credit for things like the new air conditioners we plan on buying. These credits are down to 10% of total cost and are capped at $500 in your lifetime. The credit applies if you finance, too. Considering the cost on an air conditioning system for a modest-sized house is $10-15,000, this may not be the best use of cash to get a $500 credit.
However, with new programs such as HERO and Ygrene, you can get energy efficiency home improvements and pay for it through your property taxes. Tax credit eligible improvements range from tank-less water heaters, new air conditioners, windows, and solar, to non-tax credit eligible items like patio awnings and desert landscape.
Essentially, these programs are just loans. They work much the same way as the municipal bonds you may already pay on your property tax bill. Your property tax and the interest portion is what you are allowed to deduct, not the principal.
The terms range from 10 to 20 years to pay at approximately 8% interest. You are allowed to borrow over 100% of the home value and it is not based on your FICA score. You can also do multiple projects until you have reached your limit. You do have to use a contractor, and if the contractor you prefer is not on their list, they can apply to be on their approved vendor list.
So, if you are short on cash and your AC is on the fritz, consider financing. Your CPA can help you save on both your income taxes and utility bills this summer by deducting the interest portion of your payment on your income taxes, and the improvements may even be eligible for federal tax credits.
For more information call Osborne Rincon CPAs at 760-777-9805.