Federal Tax Credits for Energy Efficiency

By: Diane Tuman, Zillow Content Manager June 10, 2009
Don’t qualify for the Obama Refinance or Loan Modification programs but still want your piece of the pie? Under the American Recovery and Reinvestment Act of 2009, the Feds will pay you to save energy through home improvement projects (and energy-efficient autos).

Quick summary of Energy Tax Incentives (from Department of Energy):
Consumers who purchase and install specific products, such as energy-efficient windows, insulation, doors, roofs, and heating and cooling equipment in existing homes can receive a tax credit for 30% of the cost, up to $1,500, for improvements “placed in service” starting January 1, 2009, through December 31, 2010.

What you need to know about Federal Tax Credits for Energy Efficiency (from ENERGY STAR):
must be “placed in service” (i.e., installed) from January 1, 2009 through December 31, 2010
must be for taxpayer’s principal residence, EXCEPT for geothermal heat pumps, solar water heaters, solar panels, and small wind energy systems (where second homes and rentals qualify)
$1,500 is the maximum total amount that can be claimed for all products placed in service in 2009 & 2010 for most home improvements, EXCEPT for geothermal heat pumps, solar water heaters, solar panels, fuel cells, and small wind energy systems which are not subject to this cap, and are in effect through 2016 must have a Manufacturer Certification Statement to qualify
for record keeping, save your receipts and the Manufacturer Certification Statement
improvements made in 2009 will be claimed on your 2009 taxes (filed by April 15, 2010) — use IRS Tax Form 5695 (2009 version) — it will be available late 2009 or early 2010

If you are building a new home, you can qualify for the tax credit for geothermal heat pumps, photovoltaics, solar water heaters, small wind energy systems and fuel cells, but not the tax credits for windows, doors, insulation, roofs, HVAC, or non-solar water heaters.

So, what is a tax credit?
A tax credit is generally more valuable than an equivalent tax deduction because a tax credit reduces tax dollar-for-dollar, while a deduction only removes a percentage of the tax that is owed. Consumers can itemize purchases on their federal income tax form, which will lower the total amount of tax they owe the government.

One big caveat according to the non-profit Alliance to Save Energy, “In order to be eligible for the tax credit, heating and cooling equipment must meet specified measures of energy efficiency. Individuals can search for qualifying products on the, Consortium for Energy Efficiency’s Web site.
So, if you were planning on doing these upgrades to your home anyway, make sure to follow the guidelines so you can get a tax credit!