#financialplanning

When considering making energy-saving home improvements, it may be helpful to have a home energy audit done. A home energy audit is an inspection and written report for a dwelling located in the United States. Fortunately, there is a federal income tax credit available equal to 30% of the amount paid for home energy audits, up to $150 per tax year. There are also credits available for many other energy-saving expenditures. The IRS has now provided some guidance on what is required to claim the credit for a home energy audit.

Background

The credit for home energy audits is part of the energy efficient home improvement credit, which allows up to 30% of the sum of amounts paid for certain qualified expenditures. There are a couple of aggregate dollar limits for certain categories of expenses as well as specific dollar limits for certain types of costs. An annual $1,200 aggregate credit limit applies to all building envelope components, energy property, and home energy audits. Building envelope components include exterior doors, windows, skylights, and insulation or air sealing materials or systems. Energy property includes certain central air conditioners, water heaters, furnaces, and hot water boilers. A separate annual $2,000 aggregate credit limit applies to electric or natural gas heat pump water heaters; electric or natural gas heat pumps; and biomass stoves and boilers.

There is also a residential clean energy property credit available for 30% of expenditures (with no overall dollar limit) for solar panels, solar water heaters, fuel cell property, wind turbines, geothermal heat pump property, and battery storage technology.

Here is a credit comparison chart for reference.

Home Energy Audit Tax Credit

As noted, the credit for home energy audits is limited to 30% of the cost of a home energy audit, up to $150 per year (30% of $500 would equal $150). It is also subject, along with building envelope components and energy property, to the annual $1,200 aggregate limit for certain items. If you claim the credit, the home energy audit should be kept as part of your tax records.

The home must be owned and used by the taxpayer as a principal residence and the audit must meet certain requirements.

• The audit must identify the most significant and cost-effective energy efficiency improvements, including an estimate of the energy and cost savings for each improvement.
• The inspection must be conducted or supervised by a qualified home energy auditor.*
• The written report must be prepared and signed by a qualified home energy auditor.
• The audit must be consistent with certain Department of Energy and industry guidelines.

The Department of Energy maintains a list of home energy auditor qualified certification programs at energy.gov.

*A home energy auditor is not required to be a qualified home energy auditor for audits conducted before January 1, 2024. For now, the credit can be claimed even if the auditor was not a qualified home energy auditor if the other requirements are met. The home energy audit tax credit cannot be claimed for home energy audits conducted after December 31, 2023, unless the audit is conducted by a qualified home energy auditor.

Prepared by Broadridge. Edited by BFSG. Copyright 2023.

Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s website or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy (including those undertaken or recommended by Company), will be profitable or equal any historical performance level(s). Please see important disclosure information here.

This past June, the Supreme Court struck down President Biden’s plan to cancel up to $20,000 in federal student loan debt for qualified borrowers.  As a result, millions of student loan borrowers are scheduled to start paying back their loans in October after a three-and-a-half-year reprieve.

Fraudsters and scam artists have already begun to prey on vulnerable borrowers by posing as legitimate debt relief companies, promising to help them repay their loans. Many of them use aggressive tactics, make false claims, and charge unnecessary fees. If you are getting ready to repay your student loans, you may be contacted by companies offering to help you.  Before you act, here are some signs that you might be dealing with a student loan repayment scam.

Up-front or monthly fees

Student loan repayment scams often try to charge an up-front or monthly fee for programs that you can normally access for free. It’s important to remember that you do not have to pay anyone to help you manage your student loans. Student loan forgiveness, discharge, consolidation, forbearance, and deferment are some of the free programs offered by most loan servicers.

High-pressure tactics

Some scam artists will use high-pressure tactics to try to get you to take advantage of an offer or program.  They may instruct you to act immediately or say that your student loan has been flagged.  They may even threaten you with legal action or wage garnishment.  A legitimate company will never use these types of aggressive tactics or pressure you to act quickly when contacting you about your student loan repayment options.

Requests for personal and/or financial information

A scammer may ask you for personal and/or financial information, such as your Social Security or bank account number or your Federal Student Aid (FSA) login information. Never share your personal or financial information with anyone via email, text message, or over the phone.

False claims of affiliation

Scam artists may also falsely claim to be affiliated with your loan servicer or an official organization, such as the U.S. Department of Education. Never use the contact information provided in an email, text, or voice message from an unknown sender, because it may be tied to a scam. Only use the contact information that is provided on your loan servicer’s website or billing statement.

Attempts to come between you and your loan servicer

Be wary of any company that attempts to come between you and your loan servicer.  Scam artists may do this by instructing you to make your loan payments directly to them or by asking you to communicate with them instead of your loan servicer. Always refer to your loan servicer when making payments on your student loans and contact them directly with any questions about your loans or loan repayment.

If you are ever the victim of a student loan repayment scam, be sure to report it immediately to your student loan servicer, the Federal Trade Commission at ReportFraud.ftc.gov, and your state’s attorney general.

Source: Consumer Financial Protection Bureau, 2022–2023

Prepared by Broadridge. Edited by BFSG. Copyright 2023.

Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s website or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy (including those undertaken or recommended by Company), will be profitable or equal any historical performance level(s). Please see important disclosure information here.

We are proud to support the upcoming “The Essentials of Financial Literacy” webinar series presented by FPA Orange County. In this series Certified Financial Planner™ professionals will teach the building blocks you need to create greater financial stability in your life. Michael Allbee, CFP®, will be presenting on “The Importance of Saving and Investing” on September 23^rd. For more information and to register go to: www.fpaocprobono.org.  We look forward to having you join us!

By: Henry VanBuskirk, CFP®, Wealth Manager

One of the greatest and most time-consuming decisions that a person can make during their lifetime is choosing when and where to move to. For many seniors, this move is done right after they retire, which only heightens the importance of that decision. The goals of moving may be to be closer to family, to downsize, or you just simply liking the area that you want to move to better than the area you live in now. If you are in the state of California, it is important to pay special attention to where you are moving to and if the area is subject to natural disasters like wildfires because some insurers like State Farm and Allstate aren’t taking on new homeowner’s insurance policies. Apparently, Californians aren’t “In Good Hands” anymore with Allstate, and “Like an Elusive Neighbor, State Farm isn’t there” (for Californians).

But all kidding aside, moving does have its benefits and Proposition 19 (Prop 19) was a “godsend” for homeowners across California to transfer their existing, lower property taxes to a new primary residence.

Prop 19 was approved by voters in November 2020 and signed into law in February 2021 and does two main things:

1. It allows for seniors over age 55, severely disabled persons, or victims of wildfires or other natural disasters to transfer their property taxes from their old home to a new home in California, as long as that new home will be considered a replacement of your primary residence.
2. It updates the transfer rules for parents (or grandparents) on the principal residence to children (or grandchildren) to transfer their family home and continue to be deemed a family home so that the child (or grandchild) can continue to enjoy the original property tax value and not have the taxable value of the home reassessed. There are special rules for this exemption:
   1. The child must live in the primary residence and the value of the home is limited to the current taxable value plus $1,000,000 (adjusted every 2 years);
   1. The grandparent must be deceased on the date of transfer if transferring to a grandchild.

For seniors that are affected by wildfires or other natural disasters, Prop 19 offers the additional benefit of being able to transfer the original property tax basis an unlimited amount of times as long as the replacement property is of equal or lesser value in the state of California. If a home of greater value is purchased, then the new property will be reassessed, and the property tax will be adjusted upward. However, this property tax increase is less than it would have been without Prop 19. So far, 23,087 homeowners who have met this qualification have cashed in on this property tax advantage, according to data provided by the state Board of Equalization.

There are a few items to be cognizant of when adjusting to the new Prop 19 rules. Careful consideration must be made for persons that are planning for generational wealth. I would like to illustrate how by walking through a client scenario we’ve helped utilize Prop 19 to keep the low original tax basis of her mother’s home that she was set to inherit.

Example:

Mr. and Mrs. Example (both age 60) live in their primary residence in Ventura County, which is worth $700,000. Mrs. Example’s mother, Mrs. Sample (age 90), lives in Los Angeles County in her primary residence worth $1,200,000. Mrs. Sample’s home was purchased in 1970 for $100,000 and has a property tax of $780 per year. Both homes in this scenario have no mortgage or other debt. Mr. and Mrs. Example’s property tax for their Ventura County home that they purchased for $600,000 in 2015 is $4,680 per year. Mrs. Sample is not in good health and Mr. and Mrs. Example decide to move into Mrs. Sample’s home to help care for her. Since Mr. and Mrs. Example understand this move is temporary, they decide to keep their Ventura County home and make the Los Angeles County home their primary residence.

One year later and Mrs. Sample passed away. Mr. and Mrs. Example through Prop 19 inherit the Los Angeles County home and are able to keep paying the low property tax of $780 per year on it. *

*Note: A new homeowner’s exemption to maintain that tax assessment must be filed within one year from the date of death. The child (or children) who will be living in the home also must file a claim for reassessment exclusion between parent (or grandparent who survives the parent) within three years (date of death) of the last surviving parents or grandparents passing.

Then Mr. and Mrs. Example decided to sell both their Ventura County property (now considered a secondary residence) and their Los Angeles County home (now considered their primary residence) to purchase a $1,100,000 home in Orange County.

The Ventura County home’s value at the time of sale was $700,000 and the Los Angeles County home’s value at the time of sale was $1,200,000. Since the Los Angeles County home was received as an inheritance, the new cost basis of the home is $1,200,000 and no tax was due when the home was sold. The Ventura County home was sold for $700,000 and originally purchased for $600,000, so there will be long-term capital gains of $100,000. The total tax bill for the Ventura County home is as follows:

• Adjusted Gross Income: $200,000
• Federal tax due from home sale: $15,000
• State tax due from home sale: $9,300
• Total tax from home sale: $21,053

While Mr. and Mrs. Example felt the brunt of the $21,053 tax bill as they were moving into their new $1,100,000 home in Orange County, they immediately noticed the benefit of continuing to pay the low original property tax basis from 1970 on Mrs. Example’s mother’s home of $780/yr. If they didn’t go through this exercise of taking advantage of Prop 19, the property tax on their Orange County home would have been $8,580/yr. By going through all of the hullabaloos explained above, they will be saving $7,797 per year (or $649.75 per month) for as long as they continue to live in the Orange County home or relocate from their Orange County home to a home of equal or lesser value at the time of sale.

Conclusion:

We’ve highlighted how Prop 19 can be advantageous to seniors over age 55, severely disabled persons, or persons affected by wildfires or other natural disasters. Relocation planning is one of our firm’s hallmark services we provide, and we can help you navigate the ins and outs of state laws to help you reach your long-term financial goals. If you’ve got your relocation plan in motion, need a second pair of eyes before you start your move, or if this article has left you with more questions than answers, we are happy to help financially guide you along your journey. Hopefully, we’ve illustrated how diligent comprehensive financial planning can help benefit you in the long run. If you have questions or would like to learn how to start a comprehensive financial plan with us, email us at financialplanning@bfsg.com or call us at 714-282-1566. Thank you. 

Sources:

1. https://www.businessinsider.com/state-farm-cuts-new-home-insurance-california-citing-wildfire-risk-2023-5
2. https://boe.ca.gov/prop19/#Introduction
3. https://calmatters.org/housing/2023/05/state-farm-california-insurance/
4. https://www.businessinsider.com/state-farm-cuts-new-home-insurance-california-citing-wildfire-risk-2023-5

Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s website or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy (including those undertaken or recommended by Company), will be profitable or equal any historical performance level(s). Please see important disclosure information here.

By:  Michael Allbee, CFP®, Senior Portfolio Manager

Thanks to the Inflation Reduction Act, the Act provides near-immediate, tangible benefits American families by lowering costs for home energy, new vehicles, health coverage, and prescription drugs. We previously discussed some of the significant provisions in the Act but we wanted to elaborate on what the Inflation Reduction Act means for you as discussed below (not an all-inclusive list).

Healthcare:

• The American Rescue Plan, which Congress passed in March 2021, increased the ACA premium tax credits and expanded eligibility above 400% of the federal poverty level (FPL) for 2021 and 2022. The Inflation Reduction Act extends those expanded subsidies through 2025.

• Caps the amount that seniors will have to pay for prescription drugs they buy at the pharmacy at $2,000 a year.

• Caps the amount that seniors will have to pay for insulin at $35 for a month’s supply.

• Provides access to a number of additional free vaccines, including the shingles vaccine, for Medicare beneficiaries.

• Will further lower prescription drug costs for seniors by allowing Medicare to negotiate the price of high-cost drugs and requiring drug manufacturers to pay Medicare a rebate when they raise prices faster than inflation.

Energy-Related Tax Credits:

• The Nonbusiness Energy Property Credit was extended through 2032 and renamed the Energy Efficient Home Improvement Credit. The credit will be equal to 30% of the costs of all eligible home improvements made during the year. This is now an annual limit, not a lifetime limit. The maximum tax credit was substantially raised: Cap raised to $1,200 per year for qualifying property on or after January 1, 2023, compared to a lifetime $500 cap previously. Savvy households can spread qualifying home improvement spending over a 10-year period, receiving up to $12,000 back in taxes, compared to $500 previously.

The annual limits for specific types of qualifying improvements will be:

• $150 for home energy audits;
• $250 for any exterior door ($500 total for all exterior doors) that meet applicable Energy Star requirements;
• $600 for exterior windows and skylights that meet Energy Star most efficient certification requirements;
• $600 for other qualified energy property, including central air conditioners; electric panels and certain related equipment; natural gas, propane, or oil water heaters; oil furnaces; water boilers;
• $2,000 for heat pump and heat pump water heaters; biomass stoves and boilers. This category of improvement is not limited by the $1,200 annual limit on total credits or the $600 limit on qualified energy property; and
• Roofing will no longer qualify.

• The Residential Energy Efficient Property Credit, now called the Residential Clean Energy Credit, was previously scheduled to expire at the end of 2023 but has been extended through 2034. The Inflation Reduction Act also increased the credit amount, with a phaseout of the applicable percentage (30% between 2023-2032, 26% for 2033, and 22% for 2034). Starting in 2023, the new credit will apply to battery storage technology with a capacity of at least three kilowatt hours.

• Starting in 2023, a tax credit of up to $7,500 is available for the purchase of new clean electric vehicles meeting certain requirements. The credit is not available for vehicles with a manufacturer’s suggested retail price higher than $80,000 for sports utility vehicles and pickups, $55,000 for other vehicles. The credit is not available if the modified adjusted gross income (MAGI) of the purchaser exceeds $150,000 ($300,000 for joint filers and surviving spouses, $225,000 for heads of household). Starting in 2024, an individual can elect to transfer the credit to the dealer as payment for the vehicle.

• Similarly, a tax credit of up to $4,000 is available for the purchase of certain previously owned clean electric vehicles from a dealer. The credit is not available for vehicles with a sales price exceeding $25,000. The credit is not available if the purchaser’s MAGI exceeds $75,000 ($150,000 for joint filers and surviving spouses, $75,000 for heads of household). An individual can elect to transfer the credit to the dealer as payment for the vehicle.

While these changes may not impact your individual tax bill, please contact us if you want to continue the conversation around tax planning and how these tax credits may save you money at tax time.

Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s website or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy (including those undertaken or recommended by Company), will be profitable or equal any historical performance level(s). Please see important disclosure information here.