If you've been putting off those green home improvement projects, don't procrastinate much longer: 2010 is a very good time to take advantage of federal tax credits. Thanks to the American Recovery and Reinvestment Tax Act of 2009, you may qualify for credits towards both small and large energy efficiency improvements to your home.
Tax Incentives for Small Home Improvements
Credits are available for 30% of the cost of improvements, up to a total of $1,500. You must spend $5,000 to take full advantage of this credit, but you will still receive a 30% credit for lesser improvements. This credit applies only to existing homes that serve as a primary residence, which doesn't include new construction, second homes or rented property. Eligible improvements include:
- Windows and doors (sliding glass doors, garage doors, storm doors and windows)
- Insulation
- Roofs (metal and asphalt)
- HVAC (central air conditioners, air source heat pumps, furnaces and boilers)
- Water heaters (gas, oil and propane water heaters, and electric heat pump water heaters)
- Biomass stoves
Tax Incentives for Renewable Energy Systems
Renewable energy systems can be pricey up front. Take advantage of tax credits at 30% of the cost with no cap on how much you spend. For example, if you invest $15,000 on new solar panels, you'll receive $4,500 in credit. Unlike the home improvement credit outlined above, this credit applies through 2016 and the restrictions are less rigorous, encompassing both new and existing homes as well as second residences (however, none of the tax credits apply to renters). Eligible systems include:
- Geothermal heat pumps
- Solar panels
- Solar water heaters
- Small wind energy systems
Credits are available for fuel cells as well, also at 30% of cost through 2016, but are capped at $500 per .5 kW of power capacity. This credit doesn't apply to second residences.
Prioritize Your Improvements
Even with help from tax credits, most of us don't have unlimited home improvement budgets. In order to get the biggest bang for your buck, start but conducting a home energy audit or hire a professional to complete one for you. Based on these results, you can determine which improvements will garner the most credits as well as long-term energy savings.
Read the Fine Print
While tax credits are a great thing, make sure you know exactly how much you'll be reimbursed. In some cases, labor and installation costs aren't covered, and certain product components, such as nuts, bolts and gutters for a new roof; a hearth, stovepipe or chimney for a biomass stove; and new ducts for an air conditioner or furnace probably aren't covered, either. Just because a product features the EnergyStar label, that doesn't guarantee that it qualifies for the 30% tax credit. Some products that are NOT eligible include:
- Ceiling fans
- Clothes washers & dryers
- Compact Fluorescent Light Bulbs (CFLs)
- Dehumidifiers
- Dishwashers
- Electric furnaces or boilers
- Electric storage tank water heaters
- Electric tankless water heaters
- Evaporative coolers (swamp coolers)
- Lighting (light fixtures or energy efficient lamps such as LEDs)
- Ovens and ranges
- Power factor correction devices
- Programmable thermostats
- Refrigerators
- Roof coatings
- Room air conditioners
- TVs
- Toilets
- Window treatments
- Whole house fans
However, you may receive credit for replacing some of these old appliances with new, energy-efficient models through the Cash for Appliances program.
Other Considerations
- Two or more unmarried people who jointly own a home are each eligible for the home improvement tax credit (up to $1,500) for the separate costs they spend.
- The home improvement credit and the renewable energy credit are independent of each other, so you may claim both in the same year.
- Tax credits are "non-refundable," meaning that you can't get more back than you actually pay on your federal taxes.
For more information:
Overview of the federal tax credits for energy efficiency
DSIRE: a comprehensive source of information on state, local, utility and federal incentives and policies that promote renewable energy and energy efficiency