Federal Energy Tax Credits – Efficiency Credit

For homeowners who have been postponing improvements to their home involving energy-related projects, the bad news is that many of the Federal Energy Tax Credits are set to expire for projects that were not completed by December 31, 2010. The good news is that the same credits have been extended through 2011, albeit it at a lower rate. Credits for some major renewable energy projects have been extended through 2016. So, if your improvement plans include purchasing energy-efficient equipment, or installing renewable energy systems, don’t put it off too much longer.

Give Yourself Credit Now

You can still benefit from energy-related improvements made in prior years (2009 and 2010) by claiming the appropriate energy tax credit on your 2010 tax return.  If you purchased new energy-efficient equipment during that period, you can claim a tax credit of 30% of the purchase price up to $1,500.  To qualify, the equipment or improvement must meet the criteria established by the 2000 International Energy Conservation Code and it must be installed in your main residence.

Qualifying improvements include:

  • biomass stoves
  • exterior doors and window replacements,
  • storm window installation
  • skylights
  • metal or asphalt roofs
  • new or replaced insulation
  • heating, ventilating, air conditioning (HVAC)
  • non-solar water heaters

Energy Tax Credit Extension

Beginning with the tax year 2011, the credit will be reduced to 10% of the purchase price up to a maximum of $500. Still a good deal if you were planning the improvements anyway.  This is still a one-time credit, so if you have used your credit sometime in the last five years, you will be ineligible to use this year.
Be sure to check with your utility company, local home improvement store or your state’s energy conservation agency for additional ways to earn energy credits. Each state has its own program for allocating its portion of the Federal government’s subsidy which may include rebates on the purchases of standard appliances such as refrigerators, dishwashers and freezers. Many of the rebates are given at the time of purchase.

Big Projects, Big Credits

Projects involving renewable energy installations are eligible for energy credits through the end of 2016. If they qualify, these projects can still earn a credit of 30% of the purchase or installation price with no upper limit.

These include:

  • Solar energy systems
  • Small wind turbines
  • Solar-powered water heaters
  • Geothermal heat pumps
  • Fuel cells

Again, credits are only available for installations occurring on your main residence. For home sale purposes, your credits will reduce the cost basis of your home dollar-for-dollar.

Your energy tax credits are claimed by filing IRS Form 5695 with your Form 1040.