Credit Due: Charging Up Your Energy Efficiency

Man installing solar panels so th family can get some sweet tax creditsAs we swelter in the summer heat, many minds drift towards thoughts of home energy efficiency improvements.

Improving your homes energy efficiency can save money on utility bills and enhance your comfort.  In addition, updating the inefficient components of your home can help with the resale value of your home.

So you’ve looked around your house, found some areas you can improve and you’ve received some quotes from eager installers.  You may have noticed something; making your home more energy efficient is NOT CHEAP!!  On the surface this may appear true.  However, there is value to having a more energy efficient home and you will most likely save money on your utility bills.  In addition, you may be able to get some tax breaks from Uncle Sam.  Congress has allowed taxpayers to take tax credits for certain home improvements.  Notice, these are tax credits, which are great because they lower the tax on your income, as opposed to deductions, which lower your taxable income.  It’s a subtle, yet important difference.

There are two main credit in this area.  It gets a little complex, but nothing we can’t handle.  The first credit is known as the Nonbusiness Energy Property Credit.  This credit officially expired for the 2014 tax year, but there is reason to believe it will be extended through 2015 (there is precedence for Congress renewing this credit every year).  This credit addresses home improvements that increase the energy efficiency of your home.  This would include replacing windows, doors, insulation, air conditioners, hot water heaters, etc.  Additionally, this credit is only available for improvements made to your primary residence and is not available for new construction homes.  Here’s a handy table that details what gets a credit and how much (note, we use the 2014 number because it hasn’t been renewed…yet):

Property2014 Credit LimitCredit based onMaximum Credit
Windows10% up to $200MaterialsCombined limit of $500 for all years after 2005
Exterior Doors10%Materials
Insulation10%Materials
Air Conditioners$300Materials and Labor
Water Heaters$300Materials and Labor
Natural gas/propane/oil furnaces$150Materials and Labor

 

So maybe you’ve decided to go a little bigger and install solar or wind power generation, solar heating equipment or a geothermal heat pump, you’ll get a tax credit for that too.  The Residential Energy Efficient Property Credit can offer some assistance with the cost of installing this equipment.  Unlike the Nonbusiness Energy Property Credit, this credit is allowed on second homes and in new construction.  The credit is equal to 30% of materials and labor costs and there’s no maximum credit.

Increasing the energy efficiency of your home can be a great investment, but one needs to evaluate the costs of the improvement versus the benefits.  Some of these benefits include lower energy bills and a possible generous tax credit.  Consult a professional to make sure you’ve properly evaluated all these costs and benefits and then sit back and enjoy the remainder of summer.

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