Save Energy (and Taxes)
Spend $5,000 or more on energy-efficient improvements and claim a tax credit of $1,500.
I understand that the tax credit for many energy-efficient home improvements expires at the end of the year. Which improvements qualify for the break? Can I claim it even if I don't itemize deductions? -- H.J. Smith, Washington, D.C.
You can get a tax credit if you make certain energy-efficient home improvements by New Year's Eve. Energy-efficient windows, skylights and doors, and certain types of roofs and insulation, are eligible (installation costs don't count). Some furnaces, heat pumps, water heaters, central air-conditioning systems and biomass stoves (including installation costs) also qualify for the credit.
The credit equals 30% of the cost of the upgrades, up to a maximum of $1,500 for 2009 and 2010 combined. So spend $5,000 or more on eligible energy-efficient improvements by year-end and you can claim the maximum energy tax credit of $1,500. This is a tax credit, not a deduction, so it lowers your tax bill dollar for dollar. You don't have to itemize deductions on your federal tax return to get the benefit, and there's no income limit.
For details, see the Environmental Protection Agency's Energy Star Web site.
I'm in the market for a used car. How can I find out whether it's been in a major accident? -- S.M., Englewood, N.J.
First get the Carfax report for the car, which is often available from the seller. Or you can order a report using the vehicle's VIN at www.carfax.com for $35 (or $45 for five reports in 60 days).
Carfax gathers information from more than 34,000 sources, including the state departments of motor vehicles, police departments, dealership service departments, repair shops, body shops and auto auctions. The report lists major issues, such as whether the car has been totaled or damaged in an accident or flood, and includes service records, ownership transactions and other information.
Follow up by having the car inspected by a mechanic or body shop. "While getting a Carfax report is a good idea, no vehicle-history-report service is 100% foolproof," says Steve Nolan, of Cars.com. An accident that wasn't reported to the insurance company or the police, for example, might not show up on the Carfax report. And sometimes an owner can "scrub" a car's history by moving the car from state to state, says Karl Brauer, of Edmunds.com. "So if a car's history before it entered its current state is blank, that's a potential warning sign," he says.
Let the mechanic know about any clues in the Carfax report that could be a tip-off to problems -- such as frame damage, airbag deployment or suspicious gaps in the service record. "An unscrupulous repair shop may not replace the airbags or may replace them improperly, and that is a serious safety issue," says Chris Basso, of Carfax.
Prevent ID theft at college
My daughter is away at college, and I've told her to be extra careful with her IDs and financial records to protect against identity theft. What's your advice? -- C.L., Pittsburgh
College students can be vulnerable to identity theft because they're sharing their personal space with a lot of people they don't know well. And it may be the first time they're conducting financial transactions on their own. Guarding personal items is most important. A study by Travelers Insurance found that 76% of ID-fraud claims in 2009 stemmed from a stolen wallet, purse, computer or personal ID, compared with only 9% from an online breach or compromised data.
Protecting her mail will also help. Remind your daughter to stop mail delivery when she's gone for the holidays and to forward mail when she moves. Or have her bank statements and other key documents sent to your house instead.
She should not pay bills or access credit-card accounts on a public computer, which could have been loaded with software that logs keystrokes and records passwords and account numbers. Nor should she access sensitive information on an unsecure Wi-Fi network.
Teach her to question the need to reveal personal information -- even if it seems to come from an official source, such as her college or a prospective lender or landlord. And even though an e-mail or phone call from a bank or credit-card company may seem legitimate, it's a good idea to verify by calling the customer-service number listed on the back of her card or on the bank's Web site, rather than clicking on an e-mail link or calling a number left on voice mail.
Consider sending a small shredder to school with her, to help dispose of documents that contain personal information. Finally, check her credit record annually at www.annualcreditreport.com to keep an eye out for any suspicious activity.
Tapping a 401(k) early
Can I use my 401(k) at age 59 as a down payment on a home? If so, what are the taxes or penalties? Is there any advantage if I quit contributing to my 401(k) and put the money in CDs to raise more for a down payment? -- T.M., Silver Spring, Md.
In most cases, you'd have to quit your job in order to take a distribution from your 401(k), although some companies allow workers to take "in service" distributions once they reach age 59. If you are permitted to take an in-service distribution, you'll owe federal and state income taxes on the entire amount.
If that isn't an option, you can borrow up to half of the balance of your 401(k), but no more than $50,000, regardless of your age. If you leave your job before the 401(k) loan is repaid, however, it is treated as a distribution subject to state and federal income taxes, plus an early-withdrawal penalty of 10% if you're under age 55. Mortgage lenders would likely be okay with a 401(k) loan as a down payment as long as the monthly payments don't bust required debt-to-income ratios.
If you cut back on your 401(k) contributions to build up cash for a down payment, make sure you contribute at least enough to capture any employer match. Otherwise, you're walking away from free money. Directing the rest of your savings to a bank account or CD is a safe alternative for short-term goals, such as buying a house, but with interest rates at near-record lows, don't expect to earn much. Also keep in mind that reducing your 401(k) contributions will increase your taxable income and may make you ineligible for certain tax breaks that are tied to income.
My thanks to Mary Beth Franklin for her help this month.