MONEY

Feds ponder home-improvement tax breaks

Now that the home buyer’s tax credits are back up and running through May, the next bit of housing-related economic stimulus is focused on homeowners who are willing to spend money to make their homes more energy efficient.



As reported in The New York Times, the “cash for caulkers” program under consideration in Washington would set aside $23 billion over two years for weatherization incentives for homeowners. About one-quarter of the $23 billion would be earmarked for homeowners who undertake at least two of 10 government-approved weatherization projects. The official Top 10 list has yet to be determined, but think along the lines of sealing drafty duct work, upgrading insulation and screwing in new energy-efficient light bulbs. Nearly half of the $23 billion would be reserved for bigger-ticket projects that reduce a home’s energy consumption by at least 20 percent.

Some things to keep in mind about cash for caulkers:

  • Government Offers to Go Dutch. The maximum government subsidy for an approved green project would be 50 percent. If you undertook at least two of the weatherization projects off of the Top 10 list you would be eligible for up to $2,000 back from the government if you spend at least $4,000. Four projects would make you eligible for at least $3,500 back, assuming that you spend at least $7,000. Higher paybacks amounts are available for projects that sharply reduce your home’s energy consumption. But again, the 50 percent rule applies.
  • Got Green in 2010 for Green Projects? Improving your home’s energy efficiency — and thus reducing your utility bills — is appealing, but is shelling out a few thousand dollars for home improvement projects in your 2010 budget? Even if you had the money, are you interested in sinking more money into your home right now? (The latest Zillow estimate is that about one-fifth of homeowners with a mortgage are underwater.)
  • Put it on your Property Tax Bill. A common weatherization hurdle is the long payback period: the number of years before the cost of the project is offset by lower utility bills. If you shell out for upgrades and then move two years later, you have no assurance you’ll recoup your project costs in a higher sale price. To address this barrier to green projects, some local taxing authorities have come up with a novel approach that rolls the cost into the property tax bill. Homeowners receive a loan to finance the weatherization and then pay it back in the form of an addition to the higher property taxes. When the homeowner sells the new owner assumes the payments via the property tax bill. So with this new financing idea just gaining traction, the cost of the improvements stays with the home, not with the homeowner who implemented them. Another plus: It adds another layer of tax break to weatherization, since property tax payments are deductible on itemized federal tax returns. (Sonoma County in California has a program up and running.)

So would a cash-for-caulkers incentive push you to make home improvements in 2010? The poll is open.

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