Energy-efficient upgrades mean lower utility bills, but they can also earn you tax credits – this year or next.
By Christopher Solomon of MSN Real Estate
It’s the time of year to think about things left undone around the house.
Here’s one task you’ve likely overlooked: making your house pay off as much as possible on your 2010 tax return. If you act fast, you may even qualify for breaks on your 2009 return.
Thanks to provisions in the American Recovery and Reinvestment Act of 2009 (aka the stimulus package), you could get
credit for thousands of dollars on your next tax return by investing in changes that make your home more energy-efficient. Combine that with the money you’ll save on your energy bill, and there’s little reason not to get started now “greening up” your home.
Here are the new or bolstered programs and what they offer:
The $1,500 credit
When you install any of several categories of products that increase the efficiency of your home, you can be eligible for tax credits of 30% of the cost, up to $1,500.
The 30% rule means that if you spent $5,000 on windows, you’d get a tax credit for $1,500. (Read more about how the tax credits work here.) Homeowners can take advantage of the credit until Dec. 31, 2010 — but any changes put in place by year’s end can be included on your 2009 tax return.
“There are several upgrades that qualify. One is windows and doors; insulation and HVAC (heating and cooling systems); roofing; certain water heaters; and then there are biomass stoves,” says Valerie Shelton, president of Green Power Living, a Fort Washington, Md., company that performs home energy audits and green home makeovers.
This tax credit replaces a federal $500 tax credit that had been in place for some years but that had confusing “sublimits,” such as a $200 cap on credits for windows, Shelton says.
Did you already take advantage of the $500 credit? It’s your lucky day. The slate is wiped clean. You can participate fully in the new program.
Now, for the fine print
Every deal has its fine print, and this one does, too: Only certain kinds of purchases count. (Sorry, that cool new thermostat can’t get written off.) More confusingly, just because a product in an approved category bears the federal government’s Energy Star label (a designation of energy efficiency) doesn’t mean it counts toward the tax credit. Here are the restrictions:
- Windows: Those bought after June 1 must have a “U-factor” less than or equal to 0.30 and a solar heat-gain coefficient (SHGC) of less than or equal to 0.30. “A low U-factor indicates good insulating value … whereas a low SHGC indicates less solar heat gain, which is particularly important in climates with high cooling demand,” according to the Efficient Windows Collaborative.
- Water heater replacement: Not all Energy Star water heaters make the tax-credit cut, says Karen Schneider, Web site manager for Energy Star. Electric storage-tank water heaters and electric tankless water heaters don’t qualify, for instance. Go here for more info. (A tip: Don’t trust a salesman to know whether something qualifies for the tax credit or not.)
- Roofing: All Energy Star metal and reflective asphalt shingles qualify. Check out info on Energy Star-qualified roofing here.
- Insulation: Most new insulation is covered; vapor retarders are, too. But insulated siding and cladding don’t count toward the tax break, Schneider says.
- Biomass stoves: Qualifying stoves must have a thermal efficiency rating of at least 75% as measured using a lower heating value.
These savings are on top of any utility-bill savings you’ll realize from having tighter doors, windows and the like. Wonder how much you’d save? Check out the Department of Energy’s calculations.
Now, for the finer print
- These tax credits are only for existing homes.
- Any upgrades must be completed by the end of the calendar year in which they’re claimed.
- The installation cost can’t be counted toward the tax credit, but can be counted for larger, renewable-energy projects. (See below.)
- Keep receipts as well as a Manufacturer Certification Statement for your records.
- When applying for the tax credit next year, use IRS Form 5695. (Note: This is a draft version of the form. Before you complete your 2009 tax return, please visit IRS.gov to obtain the final version.)
- Spending a ton of dough? Sorry, you won’t get a refund if your credit exceeds your tax bill.
But wait, there’s more
Want even bigger savings? You can get it, and then some. You just have to think bigger — and then spend bigger.
If you invest in a renewable energy project for your house, “you get a tax credit for 30% of the cost, and there’s no upper limit,” says Green Power Living’s Shelton. “For instance, if it costs you $10,000 to install solar panels for your home, your tax credit would be 30% of that — so it’d be $3,000.”
Here’s what the “renewables” tax credit applies toward:
- Geothermal heat pumps
- Solar energy systems (including solar water heaters)
- Small wind-energy systems
- Fuel cells
The credit is available through the end of 2016.
Of course, these upgrades aren’t cheap. For instance, the California Energy Commission estimates that the average-size home would need a $7,500 geothermal heat pump system, or nearly double the cost of a conventional heat pump. But you’d earn a hefty $2,500 tax credit to cushion the blow. And you’ll recoup that initial outlay of money over time in the money you save.
Cash for Clunkers … for appliances
Here’s yet another way homeowners may be able to benefit: Earlier this year the federal government set aside nearly $300 million of the stimulus package to encourage the purchase of energy-efficient appliances.
The program, which will be administered by the states, is still in the final planning stages. It’s likely to apply to “products (that) offer the greatest energy-savings potential,” the government said, and will probably take the form of rebates for Energy Star-qualified appliances such as central air conditioners, heat pumps, boilers, furnaces, room air conditioners, clothes washers, dishwashers, freezers, refrigerators and water heaters.
When this article was written, the programs hadn’t begun. Stay tuned for more information about the program, which is likely to be announced as early as late 2009.
Think globally, act locally
You want even more incentive to “green up” your home? Good for you.
How about this: Even more money is available.
Many state and local governments and local utilities offer incentives and rebates for energy-efficient investments. That means purchases that save you money with the IRS on April 15 could also earn you cash back or credits on your state and local taxes. “You can double-dip on these,” Shelton says.
Check out the programs your state offers here. Find rebates on heating and cooling equipment here.
Don’t stop there; you’re on a roll. Also call your city or county government and your local utility directly to see if they have any other incentive programs. Your savings might be only beginning — just for doing the right thing
