FINANCIAL HOUSEKEEPING: Use tax laws to lower home-improvement costs
With heating costs rising, it’s never too late to fix a drafty house. Recent law changes provide tax credits that make it cheaper to upgrade the energy efficiency of your home and lower your heating and cooling costs. The credits apply to improvements to the taxpayer’s principal residence. Materials must be purchased and improvements made during 2006 and 2007.
Improvements eligible for credit include adding insulation, upgrading windows and doors, installing high- efficiency furnaces, air-conditioners, water heaters, fans and more. The credit – part of the Energy Policy Act of 2005- has a lifetime maximum limit of $500, and only $200 of that amount can be from window expenses. Individual credits depend on the item being installed and can range from $50 to $300, again subject to the lifetime limit.
SHORT COURSE: Actively and passively managed mutual funds
A passively managed mutual fund attempts to mirror the performance of a specific market index or basket of securities. By sitting back and allowing the index to dictate financial decisions – managers change the fund only when the index changes – passively managed funds tend to keep costs very low. They will not, however, beat their market index, instead delivering the index return minus the small costs.
Managers of an actively managed fund trade securities to reach their goal, which typically is performance equal to or better than a specific benchmark. The additional activity tends to result in higher management fees; those fees, coupled with management mistakes, can often lead to an actively managed fund trailing the index it tries to beat.
