Federal Tax Credits for Energy Efficient Improvements! As part of the Economic Stimulus Plan (American Recovery and Reinvestment Act of 2009), homeowners can take advantage of up to $1,500 in tax credits (or up to 30% of the cost) for home improvements that meet the qualifying efficiency requirements. There have been some recent significant improvements in this program, including an extension of the program to December 31, 2010!
What's The Difference Between a Tax Credit and a Tax Deduction? A tax deduction reduces the amount of income subject to tax. For example, if your taxable income is $25,000 and you have a $500 tax deduction, your taxable income would be reduced to $24,500. A tax credit actually reduces the amount of tax you have to pay! For example, if you owe $800 in taxes at the end of the year, and you get a $300 tax credit, then you will only owe $500. If you are getting a refund at the end of the year, you can still most likely collect the entire tax credit, as long as the total amount of income taxes that you have paid throughout the year (check your W2 for this amount) is more than the total amount of tax credits that you are claiming. You generally can't get more money back from the government than you paid in income taxes with the exception being 'refundable' tax credits, such as the Earned Income Tax Credit. (Obviously, you should always check with your tax advisor regarding these matters.)
What Kinds of Improvements Are Eligible? For existing homes that are the taxpayer's principal residence, tax credits are available for qualifying:
• Windows
• Doors
• Insulation
• Roofs (Metal and Asphalt)
• HVAC
• Water Heaters (non-solar)
• Biomass Stoves
For both existing homes as well as new construction, tax credits are available at 30% of the cost with no upper limit through 2016. Second homes and rentals do qualify for these credits as well. Some of these products include:
• Geothermal Heat Pumps
• Solar Panels
• Solar Water Heaters
• Small Wind Energy Systems
How Does This Federal Tax Credit System Work? Products must be 'placed in service' from January 1, 2009 through December 10, 2010. The IRS defines 'placed in service' as when the property is ready and available for use. The product must have a Manufacturer Certification Statement to qualify. A Manufacturer's Certification is a signed statement from the manufacturer certifying that the product or component qualifies for the tax credit. The IRS encourages manufacturers to provide these Certifications on their website to facilitate identification of qualified products. Taxpayers must keep a copy of the certification statement for their records, but do not have to submit a copy with their tax return. Be sure to save your receipts and the Manufacturer Certification Statement for record keeping as you will have to file it when you are doing your tax returns. 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.
Visit the Energy Star Website at
www.energystar.gov/taxcredits for all of the details on this program, or feel free to contact us at (408) 274-6060 if you have questions or are interested in adding any of these energy efficient improvements to your home.