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Source: Fall 2010 Country Minute Newsletter

Tax-Planning Tips to Keep in Mind before Year-End

January 1 is just around the corner, and before year-end you may want to consider some home improvements and business tax enhancements that could minimize your tax liability. Also, if you purchased a home this year, you may qualify for a homebuyer tax credit as well.

Tax Credits for Energy Efficiency Improvements to Your Home

Homeowners are entitled to a federal income tax credit on 2009 and 2010 tax returns for certain energy efficiency improvements to their primary residence. The credit applies to improvements such as insulation, energy efficient exterior windows, skylights and doors and energy efficient heating and air conditioning systems. The manufacturer or retailer of the energy efficient items should certify that the improvements qualify for the tax credit. The credit is 30% of the cost of the energy efficient improvements up to a $1,500 nonrefundable cumulative credit for 2009 and 2010. This credit is available only for improvements to your primary residence – new home construction does not qualify.

Tax Credits for Alternative Energy Equipment

Homeowners also qualify for a 30% nonrefundable federal income tax credit for installing alternative energy equipment using solar, wind or geothermal technology. There is no cap on this federal income tax credit, which is effective for alternative energy equipment installed January 1, 2009 through December 31, 2016. Any unused alternative energy credit can be carried-forward to future years. Unlike the energy efficient improvement credit referenced earlier, new home construction qualifies for the alternative energy credit. Both the energy efficiency improvement credit and the alternative energy credit are computed on IRS Form 5695. Business entities also qualify for a similar alternative energy credit.

Homebuyer Credits
If you signed a purchase agreement to purchase a home before

May 1, 2010, and actually closed on the home purchase before October 1, 2010, you may qualify for a homebuyer credit. If you did not own a home for three years before purchasing the home, you may qualify for up to an $8,000 refundable new-homebuyer credit. If you owned the same home for any five consecutive years in the past eight, you may qualify for up to a $6,500 refundable long-time homeowner credit. Rather than waiting to claim the homebuyer credit on your 2010 return, which is filed in 2011, you may amend your 2009 tax return to claim the homebuyer credits.

Recent Tax Enhancements for Businesses
  • President Obama recently signed the “Small Business Jobs Act.” A few of the major business tax enhancements include:
  • Increasing the Sec. 179 depreciation expense deduction from $250,000 to $500,000 for 2010
    and 2011.
  • Extending the 50% bonus depreciation on the purchase of qualifying new assets to 2010.
  • Allowing the self-employed health insurance deduction to reduce self-employment tax as well as income tax for 2010 only.