Q: I obtained an automatic extension, and my 2013 income tax is not due until October.
I heard there are tax credits for energy-efficient home improvements that could reduce my taxes. Can you give me some information?
A: There are many tax credits available, ranging from credits for the elderly or disabled to child and dependent care. There are also two kinds of energy-efficient tax credits.
With residential energy-efficient property (REEP), you can get a credit of 30 percent of the cost of alternative energy equipment installed in your house, such as solar water heaters or wind turbines.
According to the IRS, there is no dollar limit on the credit for most types of property.
If your credit is more than the tax you owe, you can carry forward the unused portion to next year’s tax return. While the home must be in the United States, it does not have to be your principal residence.
Unless Congress tampers with it, this credit will be available through 2016.
With a nonbusiness energy property credit, you can get a 10 percent credit of the cost of certain qualified energy-saving items you added to your principal residence last year, such as insulation, windows, doors and roof.
There is a maximum limit of $500, and only $200 of this limit can be used for windows. According to the IRS, this credit expired December 2013, and unless you used up your limit in earlier years, you can claim this credit on your 2013 return.
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What’s the difference between a credit and a deduction? A credit is deducted right from what you would normally owe the IRS, while a deduction only reduces your taxable income.
You have to use Form 5695, and you can get more information from IRS Publication 17, “Your Federal Income Tax,” free from irs.gov/publications.
I cannot provide specific legal or tax advice, so please discuss your situation with your tax advisers.
Q: Could you please clarify a point you made in one of your columns?
As I understand it, you were saying that to avoid probate, owners need to transfer their property into a revocable trust. My lawyer has always maintained that since the property is deeded to both of us, if one dies, then there is still no need to have the property included in our separate trusts. Is this not true?
A: Your lawyer is right. If you and your wife hold the property as tenants by the entirety (or in some states as joint tenants with rights of survivorship), on the death of one of you, the survivor will automatically own the property. This is known as “by operation of law.” But when the survivor dies, if the house is not in a revocable trust, then probate most likely would be required.
What I was saying is this: In order to avoid probate, you must physically transfer the property into the trust you have created.
That means you have to deed the property into the trust (I hereby deed Blackacre for no consideration to the XYZ Revocable Trust), and you have to record that deed among the land records in the jurisdiction where the property is located.
A trust that does not actually own the property does not solve your concerns.
Benny L. Kass is a practicing attorney in Washington and Maryland. No legal relationship is created by this column; mailbag@ kmklawyers.com