Tax Credits for Energy-Efficient Home Improvements


If fluctuating energy costs and environmental concerns have you looking for ways to go green, the following energy-efficient home improvement credits may help. Making certain energy efficiency improvements to your home may also help lower your tax bill.

$500 Credit for Basic Energy-Saving Improvements
There are two different tax credits for energy-saving home improvements. The first credit equals 10% of certain qualified expenditures plus 100% of certain other qualified expenditures, a maximum overall credit of $500. The $500 maximum must be reduced by any similar credit claimed in any earlier post-2005 year.

The credit covers a broad range of energy-saving expenditures for a principal residence (including a manufactured home). Plus, it’s available against Alternative Minimum Tax (AMT), and there are no income restrictions. However, expenditures for vacation homes and foreign residences are ineligible.

This credit will likely expire at year-end unless Congress extends the credit. Therefore, eligible taxpayers may need to take action by 12/31/11 to obtain benefit from this credit.

Eligible Improvement Costs. For the following improvements to a U.S. principal residence, the maximum credit equals 10% of qualified 2011 expenditures up to the overall $500 credit cap, reduced by any similar credit claimed in any earlier post-2005 year.

  • Exterior windows, including skylights, that meet or exceed Energy Star program requirements—subject to a separate $200 credit cap for all post-2005 years.
  • Exterior doors that meet or exceed Energy Star program requirements.
  • Insulation material or systems designed to reduce heat loss or gain that meet criteria established by the 2009 IECC.
  • Metal and asphalt roofs that meet or exceed Energy Star program requirements and have pigmented coatings or cooling granules designed to reduce heat gain of the residence.

*For these items, costs for site preparation, assembly, and installation cannot be counted for purposes of determining the allowable credit amount.

Eligible Equipment Costs. For the following items of energy-saving equipment installed in a U.S. principal residence, the maximum credit equals 100% of qualified 2011 expenditures up to the overall $500 credit cap, reduced by any similar credit claimed in any earlier post-2005 year.

  • High-efficiency central air conditioners; electric heat pumps; electric heat pump water heaters; water heaters that run on natural gas, propane, or oil; and biomass fuel stoves used for heating or hot water—subject to a separate $300 credit cap for 2011 for these items.
  • Furnaces and hot water boilers that run on natural gas, propane, or oil—subject to separate $150 credit cap for 2011 for these items.
  • Advanced main air circulating fans used in natural gas, propane, and oil furnaces—subject to a separate $50 credit cap for 2011.

*For these items, expenditures for site preparation, assembly, and installation are counted in determining the allowable credit amount.

30% Credit for Big Ticket Energy-saving Equipment
The second credit equals 30% of qualified expenditures to buy and install more-exotic energy-saving equipment for a U.S. residence (manufactured homes are eligible).

Qualified Expenditures. In general, 30% of the cost for the following types of equipment (including costs for site preparation, assembly, installation, piping, and wiring) count as eligible expenditures for this credit.

  • Qualified solar water heating equipment for a U.S. residence, including a vacation home.
  • Qualified solar electricity generating equipment for a U.S. residence, including a vacation home.
  • Qualified wind energy equipment for a U.S. residence, including a vacation home.
  • Qualified geothermal heat pump equipment for a U.S. residence, including a vacation home.
  • Qualified fuel cell electricity generating equipment for a U.S. principal residence. Vacation homes are ineligible for the fuel cell credit. Also, the maximum annual fuel cell credit is limited to $500 for each .5 kilowatt hour of fuel cell capacity added during that year.

Big Expenditures Translate into Big Credits. Because expenditures for the aforementioned items can be big numbers, the credit amounts can be big too. And there are no income limits. The credit is also available against AMT. If the credit is so large that it cannot be fully utilized on this year’s return, the excess can be carried forward to 2012 and beyond.

No Hurry for This Credit. This credit is available through 2016, so there is no need to rush to take advantage.

Manufacturers’ Certifications Are Required for Both Credits
A good place to start your search for an energy efficient product is atwww.energystar.gov/taxcredits, where you’ll find requirements for various products. To be sure that the product purchased satisfies the required energy saving conditions for the credit, the manufacturer’s certification must be obtained to prove the product in question qualifies. The certification may be on the product packaging or it may be available on the manufacturer’s website. In any case, the certification should be kept with the tax records.

Conclusions
In addition to the two tax credits explained here, state and local income tax benefits, subsidized state and local financing deals, and utility company rebates may be available. These extra inducements can amount to hundreds of dollars or more.