Congress has extended energy efficiency tax credits for most homeowners through the end of 2010, so if you've been looking to upgrade your water heater or windows and doors, you can probably still get a tax credit in the coming year. Some less common of the tax credits for home improvements will be around all the way until 2016. From EnergyStar.gov
If you purchase an energy-efficient product or renewable energy system for your home, you may be eligible for a federal tax credit. …
Please note, not all ENERGY STAR qualified products qualify for a tax credit. ENERGY STAR distinguishes energy efficient products which, although they may cost more to purchase than standard models, will pay you back in lower energy bills within a reasonable amount of time, without a tax credit
Update: The tax credits will expire on 12/31/2010, but a new one has been passed. 2011 Home Improvement Tax Credit
Energy Tax Credits Extended Through 12/31/2010
So how much is the tax credit, and how do you get it?
- Tax Credit: 30% of cost of the home improvement, up to $1,500
- Expires: December 31, 2010
- Provisions: Must be on an existing home & your principal residence. New construction and rentals don't qualify. (Remember this is a “home improvement” tax credit!)
So what does this mean? For any qualified upgrade, the tax credit is 30% of the covered cost up to a $1500 total credit. For instance, if you pay $4000 for a central air conditioning system (excluding installation costs), your credit would be $1200.
The house must be your principal residence and the credits don’t apply to new construction. Other, upgrade-specific restrictions apply, so see the government site for details.
What Energy Efficient Products Are Eligible For The Tax Credit?
A variety of products are eligible for the tax credit, however, you need to be careful that your specific product is eligible. Some of the products include:
- Energy efficient doors and windows. Installation costs are not eligible for the credit. Other restrictions apply.
- Water Heaters. Credit includes installation costs; some restrictions for energy efficiency apply.
- Insulation, whether spray foam, fiberglass, or blow-in cellulose, they’re all covered so long as they meet IECC requirements. Installation cost is NOT covered.
- HVAC components, including advanced air handlers, air force heat pumps, central A/C units, boilers, propane, and gas furnaces. Tax credits include installation costs.
- Biomass Stoves.
- Metal and asphalt roofs. Credit doesn't include installation costs.
Some of the tax credits will take into account installation costs, while other credits do not. To find out if your product is included, and whether you can include installation costs, check the government site here.
How Do I Apply For The Tax Credit?
To claim the energy efficient products tax credit, you'll need to claim the credit on your 2009 or 2010 taxes.
For products “placed in service” in 2009, you need to file the 2009 IRS Form 5695 and submit it with your 2009 taxes (by April 15, 2010). Currently, only a DRAFT version of the 2009 IRS Form 5695 is available (without the instructions section). The final 2009 IRS form will be available in late 2009/early 2010.
So to claim the credit in 2010, the product will have to be placed in service in 2010. Same for the 2009 credits. 2009 Federal Income Tax Brackets for your reference.
Frequently Asked Questions (FAQ) About The Tax Credit
Here are the answers to a few of the most frequently asked questions about the credit.
- Is the $1,500 energy tax credit available for each product? Can I get $1,500 for windows and another $1,500 for a new HVAC system? Can I get $1,500 in 2009 and another $1,500 in 2010? Can two people living in the same home both get the $1,500 credit? Even if you purchase multiple products you can only get a maximum of $1,500 over the 2-year period (2009 & 2010). Basically you can spend up to $5,000 during this 2 year period on a single or multiple products, for your principal residence that you own and live in, and get 30% or $1,500 (30% of $5,000 = $1,500) back as a tax credit. If you get the entire $1,500 credit in 2009, then you can't get anything additional in 2010. (Note: the maximum does not apply to all products)
- Can the energy efficiency tax credit be carried over to future years? The tax credit for products at 30% up to $1,500 can not be carried over to future years. But you can take part of the $1,500 in 2009, and the rest in 2010. A few select products that are not subject to the $1500 limit can be carried forward. Find details here.
- Is there an income limit on the tax credit? No, there is no upper or lower limit on the credit, however, these energy efficiency tax credits are technically “non-refundable.” If you don't pay any taxes, then you can't get the credit. Details here.
Are you planning on installing a new roof or water heater or other eligible product? Do you plan to claim the credit next year? Do you think the credit makes it worth it to install a new energy efficient product, or will you still hold off? Tell us your thoughts in the comments!