By Elizabeth Razzi
Sunday, October 19, 2008
Given the economic battering we're withstanding, anyone of sound mind is thinking twice before buying as much as a cheap sweater, not to mention expensive home improvements.
But recessions don't last forever. At their worst, they always look like the start of a dark new era, but even then, somewhere in the background, the business cycle keeps chugging, building traction toward an eventual recovery. Now may not be the time to invest in your house, but it's a very good time to plan.
Recessionary thinking, and the way it snowballs, was described aptly in an e-mail I received this week from Anneli Levy, a reader in Bethesda. It was in response to a recent column outlining ways to cut spending during the downturn.
"I have a friend whose son is an independent contractor," Levy wrote. "Not remodeling kitchens would directly impinge on him and his livelihood. Doing your own painting would do the same thing. . . . I, myself, will probably buy only one-half the number of pansies for my front yard and have cut back on a number of food items. Unfortunately, we are all together in one knot in our way of life."
Nobody is suggesting that you sacrifice your financial stability through patriotic spending. But you should know that if you return to investing in your home next year, there will be some attractive federal tax credits lined up to help you do it in the most energy-efficient way possible.
Many of these incentives had been available during 2006 and '07 but expired for 2008. They will not be available retroactively for 2008 purchases, so it would be wise to hold off on such expenditures through the rest of this year.
Homeowners will qualify for credits to help with the cost of installing top-efficiency windows, doors, roofs, heating and air-conditioning systems, and water heaters. Only certain products, the most efficient ones, will qualify. You can be sure retailers will call your attention to them, but you can research them yourself at http://www.energystar.gov.
For qualifying exterior doors, storm doors, metal roofs and insulation, the tax credit will be 10 percent of the cost, up to a $500 credit.
Windows, skylights and storm windows will qualify for a credit of 10 percent of the cost, with the credit capped at $200.
Central air-conditioning systems and heat pumps will qualify for $300 credits.
Top-efficiency furnaces or boilers that go beyond the government's Energy Star standard will qualify for a $150 credit. Some super-efficient tankless or electric heat-pump water heaters will qualify for a $300 credit.
The really big-ticket investments, residential fuel cells and solar panels, allow you to generate your own electricity. They will qualify for bigger tax credits, and homeowners will have until the end of 2016 to get them installed and qualify for the tax break.
For solar water heaters (except those used for swimming pools) homeowners can get a tax credit covering 30 percent of the cost, up to $2,000. Investments in electricity-generating solar panels can garner a tax credit for 30 percent of the cost, without any cap. High-efficiency fuel cells may qualify for a credit equal to 30 percent of the cost, with a cap of $1,000 per kilowatt hour that can be produced.
Richard Deutschmann, a vice president of Chesapeake Solar in Jessup, said the typical home in the Washington area, if it has a roof facing the sunny south, uses a 3-kilowatt solar panel system that costs about $25,000 to $30,000 installed and generates about 350 kilowatt hours per month. Homes with solar panels still remain connected to the electricity grid. They can buy power from it when it's dark or cloudy and can sell their surplus power back into the grid.
Such a system could also generate a federal tax credit in the $7,500 to $9,000 range. With the help of tax credits, the payback period -- when your electricity savings have outpaced the initial investment -- can be well under 10 years, Deutschmann said.
Depending on where you live and on the availability of funds, state and county programs may offer rebates, too. You can learn more about those programs at http://www.dsireusa.org. Yes, the Database of State Incentives for Renewables & Efficiency, which is funded by the U.S. Department of Energy, runs a Web site named DSIRE. That little tidbit may have brightened my day more than even the prospect of tax breaks.
D.C. First-Time-Buyer Tax Credit
The $5,000 tax credit for first-time home buyers in the District is officially back in business, retroactive to Jan. 1, 2008, and running through the end of 2009. It's the latest turn in a long history of tax-credit expiration and last-minute resuscitation, which leaves buyers guessing whether they really will get the home-buying incentive. The latest renewal was tucked into the financial rescue bill signed into law earlier this month.
The tax credit is designed to entice people to move into the District, so the definition of first-time buyer is unusually broad. People who have owned a home elsewhere may qualify if they buy and relocate -- for the first time -- to a primary home in the District.
The credit is available to buyers with modified adjusted gross incomes of up to $90,000, or $130,000 for couples filing jointly, but the size of the credit starts to shrink once income hits $70,000 for singles or $110,000 for couples. To claim the credit, use IRS Form 8859, available from http://www.IRS.gov.
E-mail Elizabeth Razzi atrazzie@washpost.com.
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