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Tax Credits for Non-Solar Water Heaters          

By: Gil Rudawsky

Published: January 15, 2016

(New!)

Adding insulation isn't just good news for your comfort and your utility bills. It could mean a tax credit, too.

Whether it’s summer heat or winter cold, insulation makes your house a lot more livable. If you added insulation last year, you might be eligible to collect a $500 energy tax credit.

Tax credit particulars:

• 10% of expenditures, up to $500 for the year, for all energy improvements combined. It's a lifetime credit.

• Save receipts and labels for Uncle Sam.

• Be sure to file IRS Form 5695 with your return.

The Energy Star site is your safest bet for information on how to get the credit. Energy Star has been pretty flexible on what it allows for this credit:

• Batts

• Rolls

• Blow-in fibers

• Rigid boards

• Expanding spray

• Pour-in-place 

Products that reduce air leaks also qualify:

• Weather stripping (such as fabric, foam, or metal to provide a seal)

• Spray foam in a can, designed to air seal

• Caulk designed to air seal

• House wrap

Installation isn’t covered.

Don’t rely solely on contractors who may not know the details or who promise their products will get the credit in order to make a sale.

Read on to learn more:

Insulation costs
Insulation is measured in R-values
Savings and energy audits

Insulation costs

Adding insulation is a relatively affordable home improvement project, and the savings can be felt almost immediately. Some DIYers can even tackle the project themselves over a weekend.

Cost for adding attic insulation to a 2,200-square-foot home:

• $1,000 to $2,500 including labor, depending on how much you put in and how easy it is to install.

• Effort and expense go up when you add it to exterior walls or around hard-to-reach ductwork.

Insulation is measured in R-values

The higher the number value (measuring its resistance to heat flow), the better the insulating power.

Recommended R-values are 30 to 60 for most attics, according to the U.S. Department of Energy. R-38 (or about 12 to 15 inches, depending on the type) is the sweet spot for most attics, says Energy Star, a joint program of the DOE and U.S. Environmental Protection Agency. ??In colder climates, go for R-49. ??The DOE’s online calculator recommends R-values for all areas of your home’s “envelope”:

• Attic

• Walls

• Floors

• Basement

• Crawl spaces

You need more insulation if your insulation is level with or below the attic floor joists.

Just about all types (fiberglass, cellulose, mineral wool, spray foam, foam board, cotton batting) qualify for the energy tax credit, as long as its primary purpose is to:

• Insulate

• Bring your home up to recommended R-value guidelines

Insulated siding doesn’t count, because its main purpose is not insulation, but simply covering your house.

Generally, most homes built before 1980 have inadequate insulation. The easiest kind to add is blown loose-fill insulation. You’ll probably need to hire a contractor. Since insulating an attic isn’t too complicated, you can get quotes—at least three—by phone. However, get a copy of the quote in writing before work starts, and be sure it specifies R-value.

Michael Kwart, executive director of the Insulation Contractors Association of America, recommends rolled insulation for do-it-yourselfers. The new material can be added on top of the existing.

Savings and energy audits

Depending on where you live and how much insulation you already have, adding more can trim heating and cooling costs anywhere from 10% to 50%.

• A home owner in the Northeast with an uninsulated attic, for instance, can save about $600 a year by adding about 15 inches of insulation (R-38) between the rafters, according to the Energy Department.

• Just 6 inches can net annual savings of about $200.

Energy audits uncover even more ways to save energy

Besides adding new insulation, conduct a whole-house energy audit to find other ways to reduce power consumption and save even more on monthly bills.

Caulk around drafty windows and doors, and stop gaps in siding and the foundation, says Matt Golden, president and founder of San Francisco-based Sustainable Spaces. Reducing a home’s air leakage by 25% can lower annual energy costs by about $300, according to the Lawrence Berkeley National Laboratory.

This article provides general information about tax laws and consequences, but isn't intended to be relied upon as tax or legal advice applicable to particular transactions or circumstances. Consult a tax professional for such advice; tax laws may vary by jurisdiction.

4 Tips to Determine How Much Mortgage You Can Afford

By knowing how much mortgage you can handle, you can ensure that homeownership will fit in your budget. 

Homeownership should make you feel safe and secure, and that includes financially. Be sure you can afford your home by calculating how much of a mortgage you can safely fit into your budget.

Why not just take out the biggest mortgage a lender says you can have? Because your lender bases that number on a formula that doesn't consider your current and future financial and personal goals.

Think ahead to major life events and consider how those might influence your budget. Do you want to return to school for an advanced degree? Will a new child add day care to your monthly expenses? Does a relative plan to eventually live with you and contribute to the mortgage?

Consider those lifestyle issues as you check out these four methods for estimating the amount of mortgage you can afford.

Homeownership should make you feel safe and secure, and that includes financially. Be sure you can afford your home by calculating how much of a mortgage you can safely fit into your budget.

Why not just take out the biggest mortgage a lender says you can have? Because your lender bases that number on a formula that doesn't consider your current and future financial and personal goals.

Think ahead to major life events and consider how those might influence your budget. Do you want to return to school for an advanced degree? Will a new child add day care to your monthly expenses? Does a relative plan to eventually live with you and contribute to the mortgage?

Consider those lifestyle issues as you check out these four methods for estimating the amount of mortgage you can afford.

 1. Prepare a detailed budget.

 The oldest rule of thumb says you can typically afford a home priced two to three times your gross income. So, if you earn $100,000, you can typically afford a home between $200,000 and $300,000.

But that's not the best method because it doesn't take into account your monthly expenses and debts. Those costs greatly influence how much you can afford. Let's say you earn $100,000 a year but have $1,000 in monthly payments for student debt, car loans, and credit card minimum payments. You don't have as much money to pay your mortgage as someone earning the same income with no debts.

Better option: Prepare a family budget that tallies your ongoing monthly bills for everything -- credit cards, car and student loans, lunch at work, day care, date night, vacations, and savings.

See what's left over to spend on homeownership costs, like your mortgage, property taxes, insurance, maintenance (http://www.houselogic.com/home-advice/maintenance-repair/home-maintenance-schedule/), utilities, and community association fees, if applicable.

 2. Factor in your downpayment.

 How much money do you have for a downpayment? The higher your downpayment, the lower your monthly payments will be. If you put down at least 20% of the home's cost, you may not have to get private mortgage insurance (http://www.houselogic.com/home-topics/private-mortgage-insurance/), which protects the lender if you default and costs hundreds each month. That leaves more money for your mortgage payment.

The lower your downpayment, the higher the loan amount you'll need to qualify for and the higher your monthly mortgage payment.

But, if interest rates and/or home prices are rising and you wait to buy until you accumulate a bigger downpayment, you may end up paying more for your home.

 3. Consider your overall debt.

 Lenders generally follow the 43% rule. Your monthly mortgage payments covering your home loan principal, interest, taxes and insurance, plus all your other bills, like car loans, utilities, and credit cards, shouldn't exceed 43% of your gross annual income.

Here's an example of how the 43% calculation works for a homebuyer making $100,000 a year before taxes:

1. Your gross annual income is $100,000.

2. Multiply $100,000 by 43% to get $43,000 in annual income.

3. Divide $43,000 by 12 months to convert the annual 43% limit into a monthly upper limit of $3,583.

4. All your monthly bills including your potential mortgage can't go above $3,583 per month.

You might find a lender willing to give you a mortgage with a payment that goes above the 43% line, but consider carefully before you take it. Evidence from studies of mortgage loans suggest that borrowers who go over the limit are more likely to run into trouble making monthly payments, the Consumer Financial Protection Bureau warns.

 4. Use your rent as a mortgage guide.

 The tax benefits of homeownership generally allow you to afford a mortgage payment -- including taxes and insurance -- of about one-third more than your current rent payment without changing your lifestyle. So you can multiply your current rent by 1.33 to arrive at a rough estimate of a mortgage payment.

Here's an example: If you currently pay $1,500 per month in rent, you should be able to comfortably afford a $2,000 monthly mortgage payment after factoring in the tax benefits of homeownership.

However, if you're struggling to keep up with your rent, buy a home that will give you the same payment rather than going up to a higher monthly payment. You'll have additional costs for homeownership that your landlord now covers, like property taxes and repairs. If there's no room in your budget for those extras, you could become financially stressed.

Also consider whether or not you'll itemize your deductions. If you take the standard deduction, you can't also deduct mortgage interest payments. Talking to a tax adviser, or using a tax software program to do a "what if" tax return, can help you see your tax situation more clearly.

Related: More on Mortgages from HouseLogic (http://www.houselogic.com/home-taxes-financing/home-loans-mortgages/)

 G.M. Filisko is an attorney and award-winning writer who's owned her own home for more than 20 years. A frequent contributor to many national publications including Bankrate.com, REALTOR? Magazine, and the American Bar Association Journal, she specializes in real estate, business, personal finance, and legal topics.