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Energy tax credits for your home

Get more green for going green. There's never been a better time to earn energy tax credits.

By Steve PollakThu, Mar 18 2010 at 6:04 AM EST
 8

Energy tax credit Photo: alexsl/iStockphoto
 
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: 

You can also check out these related Mother Nature Network stories: 

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Related Topics: Green Building, Green Projects, Save Money, Taxes

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anonymous
Eco-Friendly Flooring 03/31/2011 11:18 AM

It is very encouraging that so many people are paying attention to our environmental troubles. eco-friendly flooring is a great way to participate in the green movement. As concerns grow about global warming and the ill effects of petroleum-based manufacturing for fuel oils and millions of other products, more and more consumers are looking specifically for “green” products.

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anonymous
Barron 10/26/2010 12:40 PM

I'm sure such credits are a very nice thing. In such a way people will be able to save maoney in future. But I also think that Energy tax credits are a sign that the situation with the global warming is difficult. The eveidence of it we can see in news every day. It is only yesterday I read the forecast of the scientists. You can find it at torrent search engine http://www.downloadtorrents.org.... More

anonymous
Ashley 08/06/2010 01:30 AM

Getting a new roof, gutting my second floor; so this tax credit will be useful.
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anonymous
RC 08/01/2010 13:34 PM

This is a very nice initiative. I'm sure such credits are a very nice thing. In such a way people will be able to save maoney in future. But I also think that Energy tax credits are a sign that the situation with the global warming is difficult. The eveidence of it we can see in news every day. It is only yesterday I read the forecast of the scientists. You can find it at pdf search engine http://www.pdfok.com . Well, the forecast is appalling. I hope it is not to late to take active.... More

anonymous
Water heaters 07/01/2010 07:18 AM

'm going to be spending well over $17,000 in 2010 on home improvement. Getting a new roof, gutting my second floor; so this tax credit will be useful. $2,500 back is better than a poke in the arm with a sharp stick.

Water heaters

anonymous
Brington Early 04/03/2010 04:28 AM

I'm going to be spending well over $15,000 in 2010 on home improvement. Getting a new roof, gutting my second floor; so this tax credit will be useful. $1,500 back is better than a poke in the arm with a sharp stick.

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anonymous
Sandy 03/23/2010 03:34 AM

I agree that people should make real, useful upgrades for their homes that will save them money and reduce energy consumption. Green oriented sites such as www.TintBuyer.com are also doing their share in helping others in pursuing green living. They could discuss and help you create a qualified windows for the energy tax credit using window tints. Window tints are cost-effective, energy-efficient and definitely.... More

anonymous
Me 03/18/2010 12:02 PM

If we really want to make this into a meaningful social benefit, we should lobby Congress to extend these tax credits. It's the right thing to do to encourage people to make meaningful upgrades to their homes.
Alas, most Americans probably don't care enough. :(

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