taxes

Tax breaks for home energy upgrades

The tax credit does not cover the installation costs for insulation, windows, doors or roofs. For these improvements, ask for an itemized bill that separates out product costs from installation costs. Installation is counted, however, for air conditioning and heating systems.

Remember, too, that if you're planning on making multiple improvements, the new, higher $1,500 credit maximum applies over the two-year period (2009 through 2010) for which the tax break is authorized.

What if you took advantage of the previous tax credit a few years ago? Not to worry.

"Even if you exhausted your $500 lifetime cap in 2006 and 2007, you now have a credit of $1,500 to use up," says Long. "It's kind of like Monopoly. Now you get $1,500 and get to pass 'Go' again."

What qualifies?

While the credit limit has changed, the improvements are essentially the same as before.

Energy-efficient home products eligible for the $1,500 maximum credit include:

  • Insulation.
  • Exterior windows and skylights.
  • Storm windows.
  • Exterior doors.
  • Storm doors.
  • Metal or asphalt roof.
  • Central air conditioning.
  • Air source heat pump.
  • Natural gas or propane furnace.
  • Oil furnace.
  • Gas, oil or propane water boiler.
  • Advanced main air circulating fan.
  • Gas, oil or propane water heater.
  • Electric heat pump water heater.
  • Biomass stove.

Homeowners who opt for more advanced home energy upgrades get an even better break. Under the stimulus law, geothermal heat pumps, solar water heating, photovoltaic systems and small wind turbines could qualify for a tax credit equal to 30 percent of the cost, including installation. There is no maximum credit cap in these cases as long as they are installed in the home by Dec. 31, 2016.

Specific energy certification standards for each product type are tracked by the federal government's Energy Star program.

Expecting lots of takers

"This credit makes a lot of sense for people in this economy," says Smith. "The new equipment also should mean reduced energy costs going forward. I expect that these improvements would help preserve or increase the value of a home. Obviously any buyer would love to buy any home that's energy efficient."

Jim Wang of Columbia, Md., certainly agrees. He had lived for more than a year with leaky windows and sliding doors. This year, he decided it was time to replace them all, with a little help from the tax code.

"We replaced everything because they were old, original to the house and very drafty," says Wang. "You could actually see holes through them and the metal ones got cold and hot. They were a mess. We were going to do it anyway, but the energy credits will certainly help defray the costs."

Many homeowners will likely do the same type of repairs, making upgrades to common energy-wasting areas in their homes and claiming the $1,500 when they file their tax return next year.

Help with geothermal unit

Tom Ness should get even more tax help. Ness has long been a believer in geothermal systems; this year he installed a geothermal heat pump at his Tampa, Fla., home for the third time.

This latest version, says Ness, is by far the best: "It's superior in many respects with regard to the materials, and that is the most effective."

Over the years, Ness received some governmental and utility company payback for his environmentally friendly home energy upgrades.

"The earlier ones had smaller rebates, and there was no federal rebate in 1994 with the second generation," says Ness. This time, though, he will get some welcome tax help for what he calls "the Maserati" of such systems.

"It's very, very efficient, but also quite a bit more expensive," says Ness. "No question the federal rebate will help."

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