Energy Efficiency Tax Credits

Federal tax law currently provides multiple tax credits to encourage energy efficiency.  These credits were good for certain expenditures in 2006 and 2007, but then expired and were not available in 2008.  They were reinstated for 2009, and currently are good for certain expenditures through the end of 2010, and certain others through the end of 2016.

In order to qualify, in addition to the expenditures having to come in those years, they must be for your primary home (in the United States) and not a business or other home (with some exceptions), the equipment purchased must be new, it must be installed with the intention that it remain installed for at least five years, and it must meet or exceed the criteria established by the 2000 International Energy Conservation Code.

Here are some of the specific items for which energy efficiency tax credits are available for homeowners:

30% of the purchase price, with no cap, for purchases made through the end of 2016:

* Fuel cell and microturbine systems (includes installation costs)

* Geothermal heat pumps (includes installation costs) (second homes qualify)

* Small wind turbines (includes installation costs) (second homes qualify)

* Solar panels and solar water heaters (includes installation costs) (second homes qualify)

30% of the purchase price, up to a cap of $1,500, for purchases made through the end of 2010:

* Biomass stoves (includes installation costs)

* Heating, ventilating, and air conditioning systems (includes installation costs)

* Insulation

* Non-solar water heaters (includes installation costs)

* Roofing

* Windows and doors

Note that the cap is for all items combined for the relevant period.  Thus if you spent $2,000 on an air conditioning system, $700 on insulation, $1,000 on a biomass stove, $1,000 on a water heater, and $1,700 on a new roof in 2009 and 2010 (which is $6,400 total), you’d only get a tax credit of $1,500 (not $1,920), because that is the cap for those items.

In order to claim these tax credits, fill out and submit IRS Form 5695 and enter the result on line 52 of your Form 1040.

The credits are non-refundable, meaning that if the credits you would be entitled to exceed the tax you owe for the year, you do not get the difference back in the form of a refund.

In some cases, energy efficiency purchases are not only the “right thing to do” in terms of doing one’s part in lessening dependence on foreign energy sources and global warming, but are also cost efficient.  However, they may require a bit too steep of an initial capital investment for many homeowners, even if long term they’d pay for themselves.  Tax credits for buying and installing energy efficient products help to make that first step just a little less painful, which can benefit the homeowner and all of us.