Energy Tax Credits: Stay Warm and Save MORE Money!

With all of the news this month about the Emergency Economic Stabilization Act of 2008, you may have heard about the energy tax incentives that were included for both consumers and for business, utilities, and governments.

If you are already preparing for winter and working to make your home more efficient, this is good news. The federal tax credits can help you save energy, stay warm, and save money this winter and beyond. Combined with other sources of financial help that we've already discussed on this blog, you may be able to save significantly on your improvements.

How Do They Work?
Federal incentives for consumers come in the form of tax credits. Tax credits are different from tax deductions, which reduce the amount of income that is taxed. A tax credit directly reduces the amount of tax owed (or increases the amount of the federal tax refund). So while you won't immediately see a check in the mail, you will see the savings (or a larger tax return) come tax time in the spring of 2010.

Why tax time of 2010 and not 2009? This is the important part: the tax credits only apply to home improvements that are "placed in service" from January 1, 2009 through December 31, 2009.

When Should I Make Improvements?
Improvements made now, in 2008, are not eligible for federal tax credits. As you consider all of the energy-saving options discussed here on the blog and on EnergySavers.gov, you will also need to decide the best time for you to make improvements.

We certainly encourage you to make urgent improvements now to ensure your home is comfortable and efficient for winter. But if you've been planning to make some non-emergency improvements, you might consider waiting until after the first of the year so you can take advantage of the tax credits.

What Improvements Qualify?
Insulation, replacement windows, non-solar water heaters, and certain efficient heating and cooling equipment may qualify for a tax credit. 

A few things to remember:

• Know the requirements before you purchase anything; in some cases, even ENERGY STAR® products don't apply for tax credits
• Keep all receipts and paperwork; some improvements require a Manufacturer's Certification Statement
• Energy efficiency improvements only apply if they are made in existing homes; these purchases for new homes do not qualify for energy efficiency tax credits.

In addition to energy efficiency improvements, tax credits are also available for solar, wind, and fuel cells; these are available through December 31, 2016, and provide credit for up to 30% of the cost of the systems. If you've been thinking about adopting these technologies at home, the next eight years are a great time to do it! Homeowners adding these technologies to new homes do qualify for these tax credits.

If you're in the market for a new vehicle, hybrid, diesel, battery-electric, alternative fuel, and fuel cell vehicles are also eligible for tax credits; again, check carefully before buying to ensure that the vehicle you plan to purchase is still eligible for tax credits. The credits are phased out after the manufacturer sells 60,000 vehicles, so many of the more popular models are no longer eligible for tax credits. The credits are available for still-eligible vehicles that are placed in service by December 31, 2010.

For complete details on all of the available tax credits and the requirements for each, see ENERGY STAR's page on Federal Tax Credits for Energy Efficiency.

Allison Casey is a senior communicator at the National Renewable Energy Laboratory, which assists EERE in providing technical content for many of its Web sites.

Comments

[katie Hanner]

Do the federal energy tax credits apply to multi-family residential buildings? Do they qualify as commerical buildings?

[John]

We live in Salem, Oregon, in an unusual-for-this-area, all-cinderblock ranch home. We just insulated the attic with the renewal of the tax credits (Sadly, home was built in 1948 and had only a few inches of vermiculite up there ... a tragedy when you think of all the energy wasted in 60 years!)

What I would like to do is find someone who has done or has studied adding insulation to the exterior of cinderblocks. We have good overhang and even a nice 2' apron of concrete all around the house, so I could see adding up to 6" of expanded poly foamboard or equivalent and then doing a stucco over that.

But I'd really like to talk to someone with experience. There was a lot of bad experience with stuccos in the northwest due to mold and wood rot, but I don't have any wood to worry about, and I'd love to have something besides R-2 cinderblock walls. (The house is quite tight, however, so at least there's that.)

[Harry E Davis]

If I bought insulation at the end of 2008 (receipted Dec 2008) and installed in Jan 2009 will I be able to claim this as a deduction on my 2009 income tax return.

[Allison Casey]

Harry,
No, I don't believe so. Tax credits for home improvements must be placed in service from January 1, 2009, through December 31, 2010. The IRS defines "placed in service" as when the property is ready and available for use.

Disclaimer: I am not a tax professional, so you may want to contact one to be sure.

Allison