The economic uncertainty we’re facing these days has many of us putting money into something with which we feel comfortable: our homes. Making a few upgrades around the house generally pays big dividends. And when boosting energy efficiency is one of them, the decision becomes a no-brainer.
For any energy-efficiency work done at your residence during the coming year, Uncle Sam will foot 30 percent of the bill—not a bad deal! Through the 2009 American Recovery and Reinvestment Act—better known as the stimulus bill—the Internal Revenue Service offers a personal tax credit of up to $1,500 for energy-efficiency improvements made to existing homes during 2009 and 2010.
The credit covers 30 percent of the cost of adding insulation materials and exterior doors, windows and roofs designed to help reduce a home’s heat loss or gain. It also includes efficient central air conditioners, air-source heat pumps, hot water boilers and biomass stoves.
For weatherization-related work, the credit covers only the cost of materials. With heating, ventilation and air-conditioning systems, as well as biomass stoves, installation costs also count toward the credit.
So how does the math work out? Say you spend $1,000 on new insulation. You would get, in the form of a tax credit, $300 off your tax bill. If you spend $3,000 to purchase a new HVAC system and have it installed, you’d have a $900 tax credit to show for it.
To take advantage of the program, a home improvement must have taken place after February 17, 2009 (the day the stimulus bill was signed into law), and products must meet specific energy-efficiency criteria. A few rules of thumb will help you determine those criteria.
For exterior windows and skylights, rely on the Energy Star label. For other efficiency upgrades, request what’s called a “Manufacturer Certification Statement” that the product or component qualifies for the tax credit. Many manufacturers post these on their websites, but be sure to verify that the product does qualify before making a purchase. You can also visit www.irs.gov/recovery to review guidelines for eligible purchases.
Energy tax credits reduce taxes owed dollar for dollar and can be carried forward to following years. While they can help boost any refund you receive, you won’t receive a check directly for the credit amount. You can file for energy tax credits using IRS Form 5695, with a total maximum value of $1,500 for improvements made in 2009 and 2010.