Looking to make home improvements to help keep energy costs down this winter? The federal government is offering some financial incentives in the form of tax credits.
The credits can be claimed on a homeowner's income taxes for 2009 or 2010, whatever year the improvements were purchased. With a credit, the amount comes off any taxes you owe. Also, the credit is nonrefundable, meaning it allows taxpayers to lower their tax liability to zero, but not below zero, according to the Internal Revenue Service.It's a good time to be thinking about improvements, says Ronnie Kweller, spokeswoman for the Alliance to Save Energy.
Upgrade your insulation, windows, doors, roofing, heating and air-conditioning system or water heater, and you could qualify for a federal tax credit for 30% of the purchase price of the product -- up to a $1,500 maximum credit.
To qualify for the credit, you must place those purchases in service between Jan. 1, 2009 and Dec. 31, 2010.
"The $1,500 cap applies to the aggregate amount of credits claimed in both years combined," says Robin Christian, senior tax analyst at the tax and accounting business of Thomson Reuters. "Also, only improvements made to your principal residence qualify -- vacation homes are not considered."
Details on which products qualify can be found on the Environmental Protection Agency's Energy Star program Web site. Some stores also post information. For instance, at Home Depot's Web site, there's a link to a list of specific products that qualify. Click on "Tax Credit Eligibility."
No Cap on Bigger Items
For typically more-costly improvements -- including solar water heaters, solar panels, small wind-energy systems and geo-thermal heat pumps -- the credit is for 30% of the purchase price, with no cap, according to energystar.gov. Fuel cells also are covered, at 30% of the cost, up to $500 per 0.5 kilowatt of power capacity.
Credits for these improvements are available through 2016, but you must claim them for the tax year in which you made the purchase. And all but the fuel-cell equipment can be used for a vacation home as well.
One note: To qualify for the credits, all of the products must be used inside a home. That means equipment used to heat a pool or hot tub doesn't qualify, Ms. Christian says.
Also, the federal tax credits don't always cover the cost of installation. The installation costs for heating and cooling systems and some other higher-cost improvements qualify, according to the Energy Star site. But installation of windows, insulation, doors and roofs doesn't.
The tax-credit rules are different if you are building a new home. In this instance, you can qualify for the credit for some upgrades, including geo-thermal heat pumps, solar panels, solar water heaters, small wind-energy systems and fuel cells. But you won't get a tax credit for the purchase of windows, doors, insulation, roofs, heating and air-conditioning systems, and nonsolar water heaters, according to the Energy Star site.
Make sure any products you purchase come with a Manufacturer Certification Statement, a signed statement from the manufacturer that says the product qualifies for the tax credit. You will need that and any receipts when you claim the credit on your taxes.
Monica Rebella, a certified public accountant in Tustin, Calif., suggests making a copy of receipts since the print can wear off receipts over time.
Where to Start
When looking to make a home more energy efficient, consumers typically first turn to insulation and windows.
"If you need insulation, that is the most cost-effective upgrade you can make -- even without a tax credit," says Karen Schneider, Web-site manager for Energy Star. "If you have a 50-year-old home and never looked at the insulation, now is the time to do that."
Many insulation projects, such as upgrading or adding insulation in an attic, are easy for do-it-yourselfers, says Michael Chenard, director of environmental affairs for home-improvement store Lowe's. "Insulation is one of the easiest things to do that is covered by the tax-credit promotion," he says.
Replacing windows also can be done by amateurs, as long as the measurements are accurate, Mr. Chenard says.
The tax credit makes the cost of a more-efficient window competitive with a lower-grade window that doesn't qualify, says Art Donnelly, owner of Legacy Builders & Remodelers in Holbrook, N.Y. And because of the weak economy, companies' "backlogs aren't as long," he says. "So it's quicker to get things installed."
