Home Energy Tax Credits

Adam Krause
by Adam Krause, Contributor

 

Are you planning to put a new roof on your house? Install new doors and windows? Repair an old, leaky water pipe? If these maintenance changes result in a more energy-efficient home, you may be able to write them off your taxes using the home energy tax credits offered by the IRS.

These tax credits, extended through 2010, will refund up to 30% of the cost of the home improvement, or $1,500. This covers parts only, not the installation costs. The home must be your principal residence, and must be an existing home at the time the improvement is made, so not a home that is just being built. You also cannot claim this tax credit on improvements to a rental home.

If you claimed this tax credit in 2009, your 2009 and 2010 tax deductions together cannot exceed $1,500. Most home energy tax deductions cannot be carried forward, meaning that they must be claimed for the year in which you made the purchase. However, some products are exceptions.

If you purchase a geothermal heat pump, a solar panel, a solar water heater, a fuel cell or a wind energy system, not only can you deduct 30% of the cost of this product but you can carry your deduction forward into the following tax year. This may be useful in situations where the amount you would be able to deduct exceeds your tax liability for the year. This is considered a residential renewable energy tax credit. Like the home energy tax credit, it is non-refundable: it can only decrease the amount you owe, not result in a refund from the government. However, tax credits are more useful than tax deductions, because they are used to offset the total amount you owe rather than just your taxable income.

Your state may have tax credits available for home energy efficiency as well. For instance, Oregon allows deductions for energy-efficient appliances such as dishwashers, as well as higher-tech improvements such as photovoltaic solar energy systems, and you can deduct improvements made on either your first or vacation home.

Keep in mind that these tax credits are not the only financial reason to outfit your house with energy-efficient equipment. Making the investment in windows that keep the heat confined during winter, and aluminum roofs that keep your house cool during the summer, will reduce your energy bills and, in the medium to long term, make the cost of the repair well worth it.