Incredible Shrinking Credits

By Pam Blair

Did you plan to make energy-efficiency improvements to your home during 2010, but procrastinated so long you lost out on the maximum $1,500 federal tax credit that expired on December 31?

The good news is you still have a chance to cash in on federal energy tax credits, thanks to an extension by the outgoing U.S. Congress.

The bad news is amounts have shrunk dramatically.

With electricity prices likely to increase in the years ahead, doing what you can now to improve the energy efficiency of your home will be worthwhile, regardless of incentives.

A Bit of History

Since 2005, Congress has enacted a series of tax breaks for consumers who take steps to make their homes more energy efficient.

The highest levels came as a result of passage of the American Recovery and Reinvestment Act of 2009—the federal stimulus bill.

While the renewable energy tax credit provisions included in that bill do not expire until December 2016, residential energy-efficiency credits did.

However, on December 17, 2010, President Obama signed the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010.

The far-reaching tax bill extends tax credits for energy efficiency into 2011, but at much lower levels.

It reduces the total lifetime credit that can be claimed on energy-efficiency improvements made between 2006 and 2011—excluding 2008, when no credit was available—from $1,500 to $500.

It also lowers the percentage of efficiency upgrade costs consumers can recover, from 30 percent in 2009-2010 to 10 percent in 2011.

Those are the same levels in place prior to the stimulus bill.

Specific Provisions

Like last year, energy-efficiency improvements must be made to an existing home—your principal residence.

New construction and rentals do not qualify.

If you received $500 or more in energy-efficiency tax credits from 2006-2010, you are not eligible for any more. That is a lifetime limit.

The latest legislation sets maximum allowances for different upgrades. They range from $50 to $300.

Highlights of the limits:

• Windows, 10 percent of the cost (not including installation), up to $200.
• Insulation, roofs and doors, 10 percent of the cost (not including installation), up to $500.
• Water heater, $300 for gas, oil or propane with an energy factor of at least 0.82 or a thermal efficiency of at least 90 percent; 10 percent, up to $500, for an electric heat pump water heater.
• Natural gas, propane or oil furnace and gas, propane or oil hot water boiler, $150; must have an annual fuel utilization efficiency (AFUE) of at least 95 percent.
• Advanced main air circulating fan, $50; must use no more than 2 percent of a furnace’s total energy.
• Air-source heat pump, $300; must have a heating seasonal performance factor of at least 8.5, an energy efficiency rating (EER) of at least 12.5 and a seasonal energy efficiency rating (SEER) of at least 15 for a split system and an HSPF of at least 8, an EER of at least 12 and a SEER of at least 14 for a package system.
• Central air conditioner, $300; must have a SEER of at least 16 and an EER of at least 13 for a split system and a SEER of at least 14 and an EER of at least 12 for a package system.
• Biomass fuel stove, $300; must have a thermal efficiency of at least 75 percent.

Others Benefit, Too

The December bill also reinstates a credit of up to $2,000 for builders of energy-efficient residences in 2011 and retroactive to 2010. The credit had expired in 2009.

To qualify, homes must use no more than half the energy of a 2003 national model energy code home.

Manufacturers of clothes washers, dishwashers and refrigerators will receive credits ranging from $25 to $225 for efficient models produced in the United States during 2008, 2009 and 2010.

While consumers do not get these credits, they could benefit as manufacturers, state or utility efficiency programs promote the efficient models.

Renewable Credits Remain

Under the stimulus bill, tax credits for renewable energy projects cover 30 percent of the cost of materials and installation for geothermal heat pumps, small wind turbines, solar water heaters and residential solar panels.

Unlike credits for energy-efficiency improvements, new construction and secondary homes qualify, as do existing and principal homes.

Specific efficiency levels are required to take advantage of the tax credits. Details are available at energystar.gov/taxcredits.

　

Tax credits directly reduce, dollar for dollar, any taxes you owe. Keep your receipts and your manufacturer’s certification statement—a signed statement from the manufacturer certifying that the product or component qualifies for the tax credit—for your records. Claim the credit on your taxes using IRS Form 5695.