Tax Credits Can Save Money on Energy Efficient Home Improvements

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The 2009 Economic Stimulus package is perhaps best known for the stimulus payments many will receive in 2009 and 2010. But the stimulus bill has other very significant tax savings for those who want to take advantage of the opportunity. One of these opportunities is a generous tax credit for energy efficient home improvements. Whether it’s new doors and windows, insulation, a roof, or even a solar water heater, you can earn a tax credit of up to 30% of the cost of the improvements.

As with any tax credit, you need to make sure in advance whether the home improvement will qualify. For example, not all Energy Star rated products qualify for the tax credit. To get you started, here is a summary what home improvements are covered in the 2009 stimulus package. This information comes from the EnergyStar.gov website, which has a, wealth of information on the available tax breaks for energy efficient home improvements.

Energy Efficient Home Improvements

As an initial matter, the home improvements must meet certain general guidelines, as described on the EnergyStar.gov website:

  • must be “placed in service” from January 1, 2009 through December 31, 2010
  • must be for taxpayer’s principal residence, EXCEPT for geothermal heat pumps, solar water heaters, solar panels, and small wind energy systems (where second homes and rentals qualify)
  • $1,500 is the maximum total amount that can be claimed for all products placed in service in 2009 & 2010 for most home improvements, EXCEPT for geothermal heat pumps, solar water heaters, solar panels, fuel cells, and small wind energy systems which are not subject to this cap, and are in effect through 2016
  • must have a Manufacturer Certification Statement to qualify
  • for record keeping, save your receipts and the Manufacturer Certification Statement
  • improvements made in 2009 will be claimed on your 2009 taxes (filed by April 15, 2010) — use IRS Tax Form 5695 (2009 version) — it will be available late 2009 or early 2010

Within these constraints, the tax credit is divided into two groups: (1) for existing homes a tax credit of 30% of the cost of certain improvements, with a cap of $1,500; and (2) for new and existing homes, a tax credit of 30% of the cost of certain improvements, with no cap. Let’s take a look at each.

Tax credits are available at 30% of the cost, up to $1,500, in 2009 & 2010 (for existing homes only)

Windows and Doors: The tax credit applies to certain exterior windows and skylights, storm windows, exterior doors, and storm doors. The products have to meet certain energy efficiency ratings, which you can find at the government’s Energy Star website.

Insulation: The insulation must meet the 2009 IECC standards (as amended) and be expected to last five years or come with a two year warranty. The product’s primary purpose must be to insulate, so an insulated sliding door, for example, would not qualify.

Roofs (Metal and Asphalt): All ENERGY STAR qualified metal and reflective asphalt shingles qualify. Energy Star has produced a paper with more information on what qualifies under this category. Note that installation and labor do not qualify for the tax credit.

HVAC: If you need to replace your furnace or air conditioner, they too are covered under the plan. You can find details about which air conditioners qualify of the tax credit here. It’s important to note that not all Energy Star qualified HVAC systems qualify for the tax credit. You can check out Energy Star’s specifications, or contact a qualified HVAC specialist.

Water Heaters (non-solar): All Energy Star rated gas tankless water heaters qualify. This is the route we’ll go when it’s time to replace our current water heater. There are currently no Energy Star qualified gas storage tank or gas condensing water heaters that qualify for the tax credit.

Biomass Stoves: To qualify, the biomass stove must have a thermal efficiency rating of at least 75% as measured using a lower heating value.

Tax credits are available at 30% of the cost, with no upper limit through 2016 (for existing homes & new construction)

Geothermal Heat Pumps: According to Energy Star, “Geothermal heat pumps are similar to ordinary heat pumps, but use the ground instead of outside air to provide heating, air conditioning and, in most cases, hot water. Because they use the earth’s natural heat, they are among the most efficient and comfortable heating and cooling technologies currently available.” You can find more details about geothermal heat pumps here.

Solar Panels: Photovoltaic systems that provide electricity for the residence qualify for the tax credit.

Solar Water Heaters: Heating water is the second biggest energy drain in most homes. Solar water heaters can reduce energy costs, and qualify for the tax credit. There are a number of qualifications, so be sure to check out the details here, along with additional information on solar water heaters here.

Small Wind Energy Systems: If you’ve never seen wind energy systems for the home, check out this selection from Amazon. Before buying, however, make sure the system you buy qualifies for the tax credit. Among other things, the system must have nameplate capacity of not more than 100 kilowatts. Here’s a link to the federal tax Form 5695 (pdf) that provides more information.

Fuel Cells: To qualify, the fuel cells must have an efficiency of at least 30% and must have a capacity of at least 0.5 kW.

These tax credits provide a great opportunity to save money making your home more energy independent. Be sure to check out this Energy Star page for more details. And be sure to confirm that the improvements will qualify for the tax credit before making a purchase.

Published or Updated: May 29, 2011
About Rob Berger

Rob founded the Dough Roller in 2007. A litigation attorney in the securities industry, he lives in Northern Virginia with his wife, their two teenagers, and the family mascot, a shih tzu named Sophie.

Comments

  1. Steve says:

    I really enjoy reading your great articles. Great money saving ideas!

  2. Mack jackson says:

    Thanks for sharing such great ideas, it will surely help many people.

  3. Be aware that you may qualify for a home improvement tax as long as the work you do on your home is really improvement and not repair work :)

    • glcedmhan says:

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  4. Adam says:

    We had our roof replaced earlier this year due to hail damage and it was covered by our insurance. Assuming the new roof qualifies for the credit, can we still receive the credit even though it was an insurance claim?

    • Eric says:

      I’m in the same situation as you. Did you find an answer re: insurance and the credit?

  5. LARRY FUNDERBURK says:

    CAN ONE USE THEIR INSURANCE MONEY AND QUALIFY FOR THE ENERGY CREDIT ?

  6. cindy subia says:

    last year our house burned and we had insurance ,so we decide to do efficient home improvements so, i would like to know if one can qualify for th energy credit.

    • DR says:

      Cindy, you should be able to qualify. I’d confirm with a tax professional, but I don’t see why you wouldn’t qualify for the tax credit so long as the improvements fall within the proper categories.

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