How-to Guide for Claiming Energy Tax Credits

Save Utility Money: Energy Star Windows, Insulation, Biomass Stoves

Dec 7, 2009
Kelly Smith

Fiberglass Attic Insulation and Radiant Barrier - Kelly Smith

Home renovation with green building technology to claim energy tax credits for the new year is a no-brainer. Know the rules; prioritize energy and utility bill savings.

Before going on a pre-tax return spending spree on all things Energy Star and earth-friendly, it pays to step back and do some planning. Maximizing return on home improvement projects is like running a profitable business; it takes some research and cost-return analysis.

What are the Energy Tax Credit Caps?

First, a tax credit is not the same as a tax deduction. Deductions generally involve doing some math to whittle down what initially looked like a good deal. Credits may be subtracted from the taxpayer tax burden.

But it makes a difference when the home improvements are made. This is an important consideration when planning how to spread out home capital expenditure. Basically, there are 3 situations.

Federal tax credit caps offered for 2009 and 2010 allow for an total cap of $1,500. This is allowed for specific energy-saving improvements on existing homes.
No caps on new construction and existing homes from 2009 through 2016.
The third differs from federal legislation and involves state incentives. Different states may offer their own energy conservation incentives which may be combined with the federal ones.

When deciding which renovation projects to tackle, it pays to consider not only the three above situations, but also to factor in which capital improvements will yield the biggest bang for the buck in energy savings. The equation is: tax credits allowed + cumulative savings on energy bills = dollars remaining in the wallet.

2009 and 2010 Money Saving Improvements

Added insulation, especially batts or blown-in attic insulation is very popular because it offers a very high return on investment. Since it is inexpensive, it may leave more money in the $1500 cap bucket. Some types of radiant barrier foil, such as Energy Q, are considered an insulation product and are allowed. The credit does not cover labor, making this an excellent DIY homeowner project.

Energy efficient doors and windows are higher ticket items but are also great ways to lower energy consumption. Note that which type of doors and windows are allowed depend on geographical zones. Additionally, these Energy Star building materials must have a solar heat gain coefficient and U-factor of 30 or below. Labor is not included.

Biomass stoves are very popular home improvements just now with winter settling in. Pellet-burning stoves are the most popular type in this category. To qualify, they must have an efficiency rating of 75% or above. In this case, installation costs are also allowed.

Certain kinds of energy-efficient roofing are eligible. Many, but not all asphalt and metal roofing materials qualify for a 30% credit.

Income Tax Savings Through 2016

Geothermal heat pumps. Heat pump models that qualify for the Energy Star label also qualify for the 30% credit on cost and labor.
Residential fuel cells. These reap a credit for purchase and labor costs for fuel cells with an efficiency of a minimum of 30%.
Residential wind turbines. Also 30% credit for wind turbines that are rated at a capacity of up to 100 kilowatts.
Solar panels. Claim a 30% energy tax credit for typical electricity-generating photovoltaic cell arrays and solar water heaters.