Energy tax credits for your home
Get more green for going green. There's never been a better time to earn energy tax credits.
Thu, Mar 18 2010 at 7:04 AM
Spring is here and that means two things: paying taxes and getting started on home improvement projects.
Along those lines, you’ve thought about replacing your leaky old windows with new energy-efficient ones, and somewhere in the back of your mind you recall reading something about earning energy tax credits for being such a good, environmentally conscious citizen.
But, before you break out the tape measure and tools, you still have a few questions: exactly how much will I get back for my home improvements? And, what’s the difference between a tax credit and a tax deduction?
First up, let’s review what your tax credit really is: it’s a direct reduction in taxes owed. This is generally viewed as more helpful than a tax deduction because a tax deduction only reduces taxes by decreasing the amount of income on which taxes are owed. That typically works out to be a percentage of the original deduction as opposed to the dollar-for-dollar drop you get with the tax credit.
Now for the exciting part: with the passage of last year’s American Recovery and Reinvestment Act, you can earn up to $1,500 in energy tax credits for several types of home improvements, including installing energy-efficient windows, adding insulation and putting on a new roof. There are additional tax incentives for more extravagant projects such as installing residential wind turbines, solar water heaters and hydrogen fuel cells.
Here are a few things to keep in mind with regard to home energy efficiency tax credits (those received for installing IRS-approved windows, doors, roofing as well as heating and air conditioning equipment):
- Homeowners may receive energy tax credits of up 30 percent of the cost of a project for a maximum of $1,500.
- New construction and rentals do not qualify for the energy tax credit, only an existing home.
- The home energy efficiency improvements much be done on your primary residence.
- Only those improvements "put into service" between Jan. 1, 2009, and Dec. 31, 2010, are eligible for the energy tax credit.
- Homeowners may receive a maximum of $1,500 over the two-year period of 2009 and 2010. In other words, you cannot receive $1,500 for your new windows in 2009 and then another $1,500 for your new roof in 2010.
- The $1,500 limit does not double for married people — unless you and your spouse own and live in separate homes.
- The tax credits earned for 30 percent of $1,500 cannot be carried forward to future years, not even from 2009 to 2010.
- Labor costs are not covered for windows, doors, insulation and roofs.
- Labor costs are covered for installation of a new HVAC, biomass stoves and energy-efficient non-solar water heaters.
As we mentioned earlier, there are additional tax incentives for more extravagant projects. You can earn energy tax credits totaling 30 percent of the total cost of a project (including labor costs and without the $1,500 limit) for installing the following on your home:
- Solar water heaters
- Solar panels
- Residential wind turbines
- Geothermal heat pumps
Unlike the home energy efficiency tax credits, the tax credits for these larger projects will not go away until 2016. In addition, the tax credits for these projects can be carried forward to future years. So, you can install those solar panels now and then claim the tax credit sometime in the future. And, the work can be done on an existing home or on a new construction residence. It doesn’t even need to be your primary residence: second homes are eligible for the tax break but rentals are not.
One other extravagant project eligible for the tax credit is the installation of a home hydrogen fuel cell. The only twist in eligibility on this credit is that second homes do not qualify. Homeowners receive 30 percent of the total cost, including labor costs, up to $500 per .5 kilowatt of power capacity.
In addition to the federal tax credits, there are several state incentives available as well. To find more information on the state incentives available in your area, check out the Database of State Incentives for Renewables & Efficiency.
Here's a quick video from the IRS discussing energy tax credits:
For more information on federal tax credits for energy efficiency, check out these links:
- Federal Tax Credits for Consumer Energy Efficiency
- EnergyStar's Frequently Asked Questions
- U.S. Department of Energy's Consumer Energy Tax Incentives
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