Deduct Everything!. Eva Rosenberg

December 31, 2016. Naturally, the devices must meet the specifications for allowable units (https://www.energystar.gov/about/federal_tax_credits). Make sure you have all the receipts and paperwork from the contractor, including written verification that the devices meet the standards for this credit. Allowable costs include “any labor costs properly allocable to the onsite preparation, assembly, or original installation of the residential energy efficient property and for piping or wiring to interconnect such property to the home” (quoted from the instructions—that’s why the wording is so stilted). Incidentally, this credit is only good on your main home or second home (like a vacation cabin), not rental property.

      Tip #68:

      If you are like my husband and are capable of doing your own installation of practically anything, you will undoubtedly save a lot of money. (But the job will take forever!) If you are only a master repairer in your own mind, please, be realistic and hire a professional—or your home will become “The Money Pit” (http://www.imdb.com/title/tt0091541). Never mind, let’s believe you are, indeed, a master! The bad news is, the value of your labor for the installation work does not count as an installation cost. However, all the parts, supplies, and expendable tools you buy specifically for this project may be taken into account. But don’t include the tools you buy that you will be able to use in the future. If you hire casual help—like those nice, convenient, inexpensive guys standing in front of Home Depot or your local hardware store—don’t expect to add those costs to the installation either. In fact, don’t even tell anyone about them. (A tax professional I knew hired some of those fellows to help him with his landscaping. His neighbor turned him in to California’s Employment Development Department. He not only was forced to hire a licensed landscaper but faced heavy fines for hiring workers without putting them on payroll and additional fines for hiring illegal aliens. So beware of neighbors who hate you.)

      Tip #69:

      By hiring a professional, you will save a lot of time and money getting the installation and setup done correctly. Besides, they are also familiar with the paperwork and can answer many of your questions. Heck, they might be able to help you fill out the paperwork or give you forms that are already filled in. They might even be able to get you discounts on the materials and supplies.

      Tip #70:

      Most of the allowable units will have the Energy Star certification. But not all Energy Star units will qualify for the credit. The Energy Star website will help you find acceptable products, credits, and perhaps even local builders: https://www.energystar.gov.

      Tip #71:

      Let’s do a reality check. Why do you want to install this alternative energy system in your home? Do you live off the grid or far from the nearest town? Do you live in an area where there are frequent power outages? Are your electricity bills outrageously high due to the constant need for air conditioning in the summer and heating in the winter? Then this probably makes sense. Are you a Green advocate and want to make a statement? I admire you and wonder why these alternative energy systems haven’t been made a standard part of new home construction over the past fifty years.

      I was in Israel in 1977 and practically every home had something that looked like a garbage can on the roof. It turned out that they were solar water heaters. We could have done that in the entire southern United States where we have sun for about two-thirds of the year—and even made the units look better. In fact, if localities had started to mandate solar, geothermal, or wind energy as appropriate to their areas, the costs of such units would have dropped dramatically by now. For instance, Iceland takes advantage of their natural resources (primarily geothermal). About 99 percent of their energy is from renewable sources, according to Scientific American (http://www.scientificamerican.com/article/iceland-geothermal-power).

      OK, why am I wasting your time with these (to me) fascinating tidbits of information? Because I want you to think twice before you make this major expenditure for the wrong reasons. Although you might get excellent tax benefits, you will still be out-of-pocket for several thousand dollars. So please do a financial analysis of this decision. You see, my husband isn’t just smart with his hands, he’s also a rather practical fellow. And speaking to my interest in solar energy units, he pointed out that many of the components only last for about ten years, then need to be replaced. So when doing your financial analysis, it’s important to factor in the expected life of each part of your system and the costs to replace them, as well as the costs for routine maintenance of the system. As a wife, let me add another factor. How much time does your spouse have to spend, during evenings and/or weekends doing the maintenance, if you aren’t paying for the servicing? To me, the little free time we have to enjoy each other is worth more to me than saving a few bucks.

      Tip #72:

      Good news and bad news about this Residential Energy Credit. First the bad news—two facts:

      1 1. When using this credit, you must reduce the basis (tax cost) of your home.

      2 2. This is a nonrefundable credit. So if your tax liability is not high enough to use all or part of the credit, you don’t get any money back at all. So you might have seriously underestimated the cost.

      The good news? While the credit is not refundable, it can be carried over to the following tax year. (One year only.) Make sure you have enough income and tax liability to use up the credit. If you don’t expect to have enough income, this is a good time to get an extra job; start a quick, profitable hobby; collect a bonus; or roll over retirement or IRA funds to a Roth IRA. Do some tax planning to see how the numbers balance before doing anything. And please take this into account when doing your computations.

      Tip #73:

      Here’s a proposed cost analysis form for you to consider using:

      Step A

      Add all the following amounts:

      1 1. System cost, including all components:

      2 2. Permits from city, county, or local authority.

      3 3. Installation costs.

      4 4. Depending on the length of time to finish the installation, how much will it cost and if you need to spend any nights in a hotel or with family or friends. Note: Staying with family or friends is never free. Factor in costs of gifts, chipping in on groceries, getting on each other’s nerves, and that you will have to repay the favor at a time most inconvenient for you.

      5 5. Cost of routine maintenance and how often this must be done. (Remember, the panels need to be cleaned regularly or they lose their efficacy.)

      6 6. Monthly costs (add them in × 12).

      7 7. Cost of major repairs, or parts replacement and how often these need to be replaced (divide the costs by the number of years in the life of the parts).

      8 8. How long you are planning to live in this house. If less than the life of the parts, divide your costs by the number of years you plan to be there to use the system.

      9 9. The cost of financing. How much interest will you pay for the loan you take out to install all this? Divide the total interest you will pay over the life of the loan by the number of years the loan will run. That will give you an average annual interest cost.

      10 10. Anything else that crops up (add as many lines as you need).

      TOTAL STEP A:

      Step B

      Add all the following amounts (if applicable). These are good things:

      1 1. Rebates from your vendor or manufacturers.

      2 2. Rebates from your utility companies.

      3 3. Rebates from local government units.

      4 4. Rebates or credits from your