Want to be the smartest tax return spender on your block? Use your 2010 tax return to invest in home improvements that reduce energy usage and you’ll save immediately on home energy costs – and you’ll reduce your tax liability for 2011, too.
Angie's List, the nation's premiere provider of consumer reviews on local service companies, including accountants, tax preparers and energy auditors, went to the experts to offer the smartest five ways to invest your tax return.
The biggest energy hogs in your home are your air conditioners, large appliances, water heaters – projects that can earn you tax credits on next year’s tax bill. If your home is already as weatherized as it can be, there are still some home improvement projects that are better investments than others.
“Tax credits for weatherizing your home and for high-efficiency appliances are still in effect for projects done in 2010, so it makes good sense to tackle them before the end of the year,” said Angie Hicks, founder of Angie’s List.
Homeowners can claim up to a $1,500 credit related to the a percentage of the costs of qualifying energy-efficient home improvements made this year, including adding insulation, windows, and energy-efficient heating and air conditioning systems.
Two years ago, 30 percent of Angie’s List members used their refund to pay bills; 25 percent invested in their homes. Two percent planned to splurge. This year, 31 percent of Angie’s List members plan to pay down bills; 27 percent will invest in their homes and only 1 percent will splurge.
“Almost any investment in your home is a good one – even if all you’re counting is the homeowner’s personal satisfaction – but some investments will bring even more return, as in actual dollars,” Hicks said.
Hicks recommends investing in a professional energy audit to determine your energy vulnerabilities and checking with a qualified local tax advisor to be sure you’re investing in projects that qualify for the tax credits.
“We’re hearing from members who are using their returns to address unexpected issues like basement flooding as well as to replace appliances and update their homes – all of these are great investments because there’s both short-term and long-term benefit,” Hicks said. “Don’t forget to check the reputation of your contractor before you hire or even the smartest spending plan will get derailed.”
5 ways to spend smart:
- The Basics: Proper home maintenance saves you money on a daily basis because it helps you avoid costly emergency repair calls and extends the useful life of your appliances and structure.
- Best bets: Hire an energy auditor to show you where you’re wasting energy and address those areas first.
- Repair/Replace Energy Hogs: If your major appliances or heating systems are creaky, you may want to start there. But before you rush out to buy the latest new appliance, check to see if repair will cost you less and still save you energy. Generally, if your appliance hasn’t reach the halfway point of its useful life, you can probably repair it more cost-effectively than buying new.
- 10-15 years for refrigerators and freezers
- 10-20 years for ovens and ranges
- 10-15 years for dishwashers
- 10-15 years for clothes washers/dryers
- 10-15 years for water heaters
- 15-20 years for central air-conditioning unit
- Insulate Yourself: Having the right amount – and right type – of insulation will help your home retain the work your HVAC system does year round, but more than half of homes in the U.S. are not properly insulated. Climate determines both type and amount, so determine your needs, or call in a pro to help.
- Easy stuff: Lighting costs rank as the fourth largest user of electricity in your home. Switching to efficiency bulbs is one of the easiest investments you can make. Tax credits don’t apply, but energy savings is immediate.