Energy Efficiency Tax Credits - Explanation and Eligibility

lender3212000 | Mar 8, 2010 |

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While many people have heard of the energy efficiency tax credits, few of us actually understand how they work and which efficiency upgrades actually qualify for a credit. For those of you who are considering taking advantage of the federal tax credits, this should help clear up some of the confusion. The way the program is currently designed, consumers can earn tax credits for each of several different renewable home energy systems they install or energy efficient products they purchase and put into use. You may be familiar with the Energy Star logo that appears on appliances designated as being energy saving. These products are designed to save you money on your home energy bills over the life of the appliance. In addition to the regular savings you will enjoy by replacing old inefficient appliances, many of these items also qualify for a federal tax credit as well to help offset the cost of the initial purchase. While not all Energy Star appliances will qualify for a tax credit, many of them do and can lead to a significant savings on your home energy bills month after month. Here are some of the major items that you can upgrade and potentially be eligible for a tax credit:

1. Energy Efficient Doors and Windows - This credit will cover up to 30% of the cost of replacing doors and windows up to a $1,500 maximum excluding the cost of installation. This credit applies to your primary residence only which means the tax credit cannot be taken on vacation or rental properties.

2. Insulation - Adding additional insulation to your home is one of the most energy saving upgrades you can make. Bulk insulation as well as weather stripping, house wrap, and caulk can all qualify for this credit as long as they come with a manufacturer certification that they help to prevent air leaks. As with the energy efficient windows and doors credit, this will cover up to 30% of the cost (not including installation) up to a maximum of $1,500.

3. Non-Solar Water Heaters - Did you know that your water heater alone can account for as much as 25% of your total home energy use? With that being the case, this is one area where you can potentially realize a considerable amount of savings by upgrading to a more energy efficient model. To qualify for this credit, the water heater you purchase must carry a thermal efficiency rating of at least 90%. This credit will also cover 30% of the cost up to $1,500 excluding any installation costs.

4. Solar Energy Systems - In order to be eligible for the solar energy systems tax credit, a minimum of half of the total energy use by the home must come from the sun. The credit applies to solar water heaters and solar panels as well. Unlike the other energy tax credits discussed so far, this one does include installation costs as well as the cost of the system. The credit covers 30% of the total cost with no upper limit.

Ready to claim your tax credit this year? Get more information about filing your federal income taxes online this year so you can get your refund in as little as 8 days! This guide will walk you through everything you need to do to e-file your tax return using one of the popular tax preparation software programs.