Tax Credits for Making Your Home Greener

If you want to “go green” or just lower your utility bills, Uncle Sam is willing to help with not one but two tax credits for energy-saving home improvements and equipment. The rules for these credits are somewhat tricky, so please pay close attention as I explain what you need to know to cash in.

The first credit is for 30% qualifying home improvement and equipment expenditures in 2009 and 2010 (the credit could not be claimed in 2008). The maximum credit over the two years is $1,500. For example, if you claim a $1,000 credit this year, you can claim up to another $500 next year. While that $1,500 limit may sound modest, the credit covers a broad range of energy-saving expenditures for your principal U.S. residence (vacation homes and foreign residences don’t count). Even better, there are no income limits on the credit, and you can use it to offset both your regular federal income bill and any alternative minimum tax (AMT) that you owe for 2009 (hopefully for 2010 too, depending on what happens in Congress).

Home Improvement Expenditures

For the following items, the credit amount excludes the costs for site preparation, assembly and installation:

* Exterior windows including skylights and storm windows.

* Exterior doors including storm doors.

* Insulation systems designed to reduce heat loss or gain.

* Metal and asphalt roofs with heat-reduction components.

Equipment Expenditures

For the following equipment, the credit includes the costs for site preparation, assembly, and installation:

* High-efficiency central air conditioners.

* Furnaces, water heaters and water boilers that run on natural gas, propane, or oil.

* Electric heat pumps and electric heat pump water heaters.

* Circulating fans used in natural gas, propane and oil furnaces.

* Biomass fuel stoves used for heating or hot water.

Make Sure You Buy Certified Equipment

You must obtain a manufacturer’s certification that the product in question qualifies for the credit. The certification may be on the product packaging, or you may be able to print it out from the manufacturer’s web site. In any case, keep the certification statement with your tax records (but don’t attach it to your return). Note that after May 31, 2009, windows and skylights with the Energy Star label don’t automatically qualify for the credit.

There’s a second personal credit for 30% of expenditures to buy and install more exotic -- and expensive -- energy-saving equipment for your home in 2009 through 2016. Except for fuel-cell equipment, there are no dollar limits on this credit, so big credits can be claimed for big expenditures. There are no income limits on the credit, and you can use it to offset both your regular federal income tax bill and any alternative minimum tax (AMT) that you may owe. If your credit is so big that you can’t use it all on this year’s return, you can carry the excess forward to next year.

Qualifying Expenditures

The credit equals 30% of qualifying expenditures (including costs for site preparation, assembly, installation, piping and wiring) for the following types of gear:

* Solar water-heating equipment for your U.S. (not foreign) residence (including a vacation home).

* Solar electricity-generating equipment for your U.S. residence (including a vacation home).

* Wind-energy equipment for your U.S. residence (including a vacation home).

* Geothermal heat-pump equipment for your U.S. residence (including a vacation home).

* Fuel-cell electricity generating equipment for your U.S. principal residence (a vacation home doesn’t count here). Also, the maximum annual credit is limited to $1,000 for each kilowatt hour of fuel-cell capacity.

Unfortunately, you cannot claim the credit for equipment used to heat a swimming pool or hot tub (that would be too good to be true). Special rules apply to expenditures for residential co-ops and condominium buildings.

Make Sure You Buy Certified Equipment

As with the first credit, you must obtain a manufacturer’s certification that the equipment in question qualifies for the 30% federal credit. The certification may be on the packaging, or you may be able to print it out from the manufacturer’s web site, or the contractor that installs the equipment may give you a written statement from the manufacturer. Keep the certification statement with your tax records (but don’t attach it to your return). Also be sure to keep proof of how much you spend, including any extra amounts for site preparation, assembly and installation.

Additional Benefits May Be Available

You might also be eligible for state and local tax benefits, subsidized state and local financing deals and utility company rebates. Hopefully, the energy savings together with the tax breaks (and any other incentives) will justify the cost.