Home Energy-Efficiency Improvement

Beginning in 2009, you can get an income tax credit of up to a lifetime total cap of $1,500 for installing efficient new windows, insulation, doors, roofs, and heating and cooling equipment in your home. However, efficiency criteria will vary dependant on when these items are "placed in service" (installed).

Who gets it?

Individuals who install specific energy-efficient home improvements.

What energy-efficient home improvements are eligible?

The overall $1,500 cap can be reached in several ways with the purchase and installation of energy-efficient products that meet certain efficiency criteria:

• Exterior windows: Includes skylights and storm windows.
• Insulation, exterior doors, or roofs: Includes seals to limit air infiltration, such as caulk, weather stripping, and foam sealants, as well as storm doors.
• Central air conditioner, heat pump, furnace, boiler, water heater, or bio gas (e.g. corn) stove: Starting in 2009, geothermal heat pumps are instead eligible for a separate tax credit—see Section 5 below.

Section 6.4 of this document contains the detailed criteria for the products and effective dates (in general only some Energy Star products qualify). Individuals can also search for qualifying heating and cooling products on the Consortium for Energy Efficiency’s web site.

In addition, to be eligible for the federal tax credits:

Windows, doors, insulation, and roofs must be expected to last at least five years (a two-year warranty is sufficient to demonstrate this).

Manufacturers can certify (in packaging or on the company’s web site) which of their products qualify for the tax credit. Retailers, contractors, and manufacturers should be able to help you determine what levels of insulation and what other products qualify.

All the improvements must be installed in or on the taxpayer’s principal residence in the United States. Condo and co-op improvements are apportioned to the owners.

A ‘patch’ to the Alternative Minimum Tax for tax year 2008 and 2009 allows this credit to be claimed by those paying the AMT. It is uncertain if this will be extended to 2010 and beyond.

How much is the credit?

The tax credit amount is now 30 percent of the cost of the measures, including installation costs for heating and cooling equipment, but only product costs for windows, insulation, and other parts of the building “shell.” There is a total lifetime cap on the credit amount of $1,500; thus the credit applies to up to $5,000 in total costs.

When is it available?

The home improvements tax credit applies for improvements “placed in service” from January 1, 2009, through December 31, 2010. However, modifications to the criteria were made on products placed in service after February 17, 2009. The credits were not available in 2008, but an earlier credit, with different criteria and credit amounts, was available in 2006 and 2007. The IRS defines “placed in service” as when the products or materials are ready and available for use – this would generally refer to the installation, not the purchase.

What do I need to do to get the tax credit?

You will need to file IRS Form 5695 with your taxes. In addition, you will need to keep at least receipts proving that you purchased the improvements and a copy of the manufacturer’s certification. Accountants and tax advisors should also be able to provide more guidance.

Geothermal Heat Pumps, Solar Energy,
Wind Energy and Fuel Cells

There are also tax credits for geothermal heat pumps solar photovoltaic cells, solar water heaters, and fuel cells, also modified starting in 2009.

Geothermal (or ground-source) heat pumps placed in service starting in 2009 are now eligible for a tax credit for 30 percent of the cost, with no maximum. These credits are effective through December 21, 2016. In order to be eligible for the tax credit, geothermal heat pumps must meet Energy Star criteria (specified in Section 6.4 below). In 2006-2007 geothermal heat pumps were eligible for a smaller credit as part of the home improvements credit described above.

Solar hot water heating and photovoltaic power systems placed in service by December 31, 2016 are also eligible for the 30 percent credit, as are small wind systems. More information on renewable tax credits is available from the Energy Star website.

Though available, residential fuel cell systems are rare in application.Some systems may be eligible for credits, subject to certain criteria.