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Build Your Own Home, Issue #027, Home Building Tax Deductions and Tax Credits
June 28, 2009
Hello,

Tax Deductions and Tax Credits
for The Owner Builder
Hello Owner Builder Friends!

Well the heat of summer is here and I have fired up the grill more than a few times already this season!!! WOW itís hot!


I have received many e-mails asking questions about tax deductions and credits for the owner builder.


I want to direct your attention to some very important tax deductions and credits that pertain to you, the owner builder when building your own home.

First of all, do you know the difference between a tax deduction and a tax credit? There is a big difference between them.

Let me explain:

TAX DEDUCTIONS: When you or your tax professional prepares your tax return, you want to list as many legitimate tax deductions as possible, i.e. your mortgage interest, property taxes, etc. This is important because all tax deductions are subtracted from your taxable income. Let say you are in the 20% tax bracket and your annual tax bill to the IRS is a total of $8000. Now letís say you qualify for an $8000 deduction on your tax return. Your annual tax liability of $8000 would be reduced by $1600, which is 20% of the $8000 taxes you owe. Instead of owing $8000, you now owe $6400. So needless to say, counting tax deductions are very important. Tax deductions give needed relief to tax payers and maintain the countryís tax revenue base. The healthiest economies promote prolific tax deductions (and lower payroll taxes that promote incentives/ business expansion)vs. tax credits.

TAX CREDITS- Are very special and donít come very often. Thatís because a tax credit is a 100% dollar for dollar reduction in what you owe in taxes. If you owe $10,000 in taxes and you get an $8000 tax credit, then your tax bill is reduced to $2000. So the Federal Government has to be very careful when giving tax credits because they significantly reduce tax revenue and the country runs on taxes. If the government gives too many tax credits to individuals or businesses then the tax shortfall has to be made up somewhere, that is usually employer paid payroll taxes and the amount of money deducted from your paycheck. Government walks a fine line here because itís not much of actual tax savings if one area (tax credits) helps and then payroll tax goes up to make up for the shortfall/deficit. The actual results of tax credits are an area studied by economists. Is sounds good, it looks good, but is it really good?

Here are a couple of common sense points when using this rule of thumb.

While the economic debate goes on about 2009 tax credits, why not take advantage of them?

Here are some very important details that you, the owner builder, can take advantage of:

Did you know that as an owner builder you could get an $8000 TAX CREDIT for building your own home?

Go to http://www.federalhousingtaxcredit.com/2009/faq.php#13 for more information.

Look at question number 13. Did you know this?

There are many more important details to study on website created by The National Association of Home Builders. Now if you are a General Contractor that builds homes for a living you can certainly tell your prospective clients about this.

More details about this at http://www.irs.g ov/newsroom/article/0,,id=154657,00.html and more web pages 
found on the www.irs.gov website.


When Designing or Constructing Your Own Home, first study all of the energy tax credits available to you. A significant number of these energy tax credits began in 2005 and they have been extended to save energy.


Go to http://www.energystar.gov/index.cfm? c=products.pr_tax_credits#s6 to give wonderful details about the 2005-2016 energy tax credits. You will see all kinds of 
ideas you can use and donít forget to read down the page and study what the energy tax credits mean to home builders (you the owner builder).

I am frequently asked, ďAre installation costs covered?Ē

Here is the answer:

Installation costs ARE COVERED for:

  • HVAC (Heating, Ventilation and Air Conditioning) systems

  • Biomass Stoves

  • Water Heaters (including solar)

  • Solar Panels

  • Geothermal Heat Pumps

  • Wind Energy Systems

  • Fuel Cells


The tax credit for HVAC, biomass stoves, and non-solar water heaters is 30% of the total cost (product + installation) up to $1,500. The law specifies installation costs include: "expenditures for labor costs properly allocable to the onsite preparation, assembly, or original installation of the property." The tax credit for solar water heaters, solar panels, geothermal heat pumps, wind energy systems, 
and fuel cells* is 30% of the total cost (product + installation), with no upper limit. The law specifies installation costs include: "labor costs properly allocable to the onsite preparation, assembly, or original installation of the property and for piping or wiring to interconnect such property to the home."

Installation costs are NOT covered by the tax credit for:


  • Windows
  • Doors
  • Insulation
  • Roofs


Now donít forget to consult your tax professional on these matters, as I am NOT an accountant. These details are meant to stimulate your thinking during the build your own process.

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Happy Home Building,

George, from Build Your Own Home.


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