Smarter Living: Energy
New Energy Efficiency Tax Credits
Looking for reasons beyond energy conservation and lower utility bills to make your home more efficient? Look no farther than line 46 of your income tax form.
In June 2005 Congress passed a new energy bill that, according to The Washington Post, gave enormous concessions to the petroleum and nuclear energy industries and weakened the EPA in doing so. For instance, it exempts oil and gas companies from the Safe Drinking Water Act when they use a process called hydraulic fracturing. Yet tucked deep inside the sprawling energy bill lay the Energy Policy Act, which offered federal tax credits for energy efficiency in both the residential and commercial sectors (unlike deductions, which reduce taxable income, tax credits reduce the tax itself). This was really good news for homeowners. The provision expired at the end of 2007, but after an extended period of waiting on a vote, the tax credits were finally revived in the American Recovery and Reinvestment Act of 2009.
For the homeowner this means a 30 percent credit for qualified windows, skylights, doors, insulation, metal and asphalt roofs, HVAC, non-solar water heaters and biomass stoves. There's no upper limit for geothermal heat pumps, solar panels, solar water heaters, small wind energy systems and fuel cells through 2016 for existing homes and new construction. And you can include the cost of installation when figuring your 30 percent tax credit for these as well as HVAC and biomass stoves. There are some limits, though: For windows, doors, insulation and roofs, the credit is only for the cost of materials, not installation, and peaks at $1,500. Still, tax credits are as good as a rebate: They come straight out of the taxes you owe on line 46.
Building a new home? If you use an eligible contractor and the house passes inspection by a home energy rater, you are eligible for a $2,000 tax credit as well. The Residential Energy Services Network (RESNET) is a third-party standards-making organization recognized by the IRS, the EPA and the Department of Energy to evaluate homes for tax credit eligibility. A September 22, 2009, RESBlog entry by Steve Baden notes that this tax credit is set to expire on January 1, 2010, though newly proposed Senate legislation would extend the credit to 2012 and increase it to $5,000.
In addition to the federal tax credit, you may also be eligible for rebates or other incentives from your state when you make energy-related improvements to your home. For state-by-state details, see http://www.dsireusa.org/.
Not all products with an Energy Star label are eligible for a tax credit, so choose carefully. Learn more about qualified products and credits on the Energy Star Web site. Check out IRS form 5695 to learn how to claim residential energy credits. Remember to keep your receipts and the Manufacturer Certification Statement.
New fuel-efficient vehicles earn you tax credits as well. The amount is determined by a set of criteria followed by the IRS and ranges from $2,500 to as much as $7,500 (for plug-in electric vehicles with four or more wheels). For credit information by model, see FuelEconomy.gov.
What you can do
- Hire a professional energy auditor to evaluate your home. Your utility company may provide basic energy audits for free. You can also check Home Performance With Energy Star or the directory of the Residential Energy Services Network.
- Switching to solar power may not be as expensive as you think. Tax credits are available for 30 percent of the cost, including installation.Learn more about qualified products and credits on the Energy Star Web site.
last revised 11/3/2011