Home Energy-Efficiency Tax Credits Explained
Learn How Energy Efficient Heating and Cooling Can Lower Your Federal Tax Bill As Well as Your Energy Bills in 2009 and 2010!
FOR IMMEDIATE RELEASE
(WILMINGTON, DE/EXTON, PA; April 4, 2009) — We all know that consumers who purchase and install energy-efficient products in their homes enjoy multiple benefits: lower home energy bills, increased indoor comfort and reduced air pollution to name a few. But with the passage of the American Recovery and Reinvestment Act of 2009 (ARRA), homeowners who make certain energy efficient upgrades and improvements to their homes in tax years 2009 and 2010 can also enjoy significant savings in the form of new federal income tax credits.
The new law extends the consumer tax benefits for another year, through 2010; triples the total available tax credit from $500 to $1,500; and increases the tax credit to 30 percent of the cost of each qualified energy efficiency improvement. The law also removes the cap on geothermal heat pumps and solar water heaters through 2016.
Homeowners will need to consult with their tax professionals, but here is a general overview of how the new tax credits work…and how consumers can benefit when they install a new energy-efficient heating and air conditioning system:
What Exactly Are Tax Credits?
Unlike instant rebates or other kinds of discounts, you don’t receive an income tax credit when you buy a product. You claim the credit on your federal income tax form at the end of the year. The credit then increases the tax refund you receive or decreases the amount you have to pay.
Tax credits are also different than tax deductions: Tax deductions – such as those for home mortgages and charitable giving – lower your taxable income. A tax credit, on the other hand, reduces the tax you pay, dollar-for-dollar. If you are in the highest 35-percent tax bracket, the income tax you pay is reduced by 35 percent of the value of a tax deduction. But a tax credit reduces your federal income tax by 100 percent of the amount of the credit. For most people, a tax credit is more valuable than a similar tax deduction.
How Do These New Tax Credits Work?
Beginning in 2009, you can get an income tax credit of up to a lifetime total cap of $1,500 for installing certain energy-efficient heating and cooling equipment in your home (as well as for the purchase of new energy-efficient windows, insulation, doors, roofs and hybrid vehicles).
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:
- Central air conditioners, heat pumps, furnaces, boilers, water heaters, or bio gas stoves (corn stoves)
- Exterior windows (includes skylights and storm windows)
- Insulation, exterior doors, or roofs
Energy-efficiency criteria will also vary dependent on when these items are installed. (See Criteria Tables below).
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 Tax 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 The Tax Credit 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 federal 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. Visit the Internal Revenue Service Website for forms and additional information
How Do The New Tax Credits Affect Tax Credits Already In Existence?
They extend and expand existing tax credits. Tax credits were first enacted in the Energy Policy Act of 2005. The home improvement credit was extended, and other credits were added in the Energy Improvement and Extension Act of 2008. Further modifications and extensions were included in the American Recovery and Reinvestment Act of 2009, signed on February 17, 2009 by President Barack Obama.
The home improvements credit (formally called the “nonbusiness energy property” credit) is in section 25Cof the tax code. The new geothermal heat pump credit, along with the credits for solar equipment and fuel cells, are called the “residential energy efficient property” credit and are in section 25D of the tax code.
How Much Can I Save On My Taxes?
Here is how much you could save on your taxes if you install energy-efficient heating and air conditioning in 2009 or 2010:
- Central air conditioner, heat pump, furnace or boiler: 30% of cost, up to $1,500. ( Only some Energy Star products qualify).
- Ground-source heat pump: 30% of cost. (Only Energy Star products qualify).
In addition, you may also be eligible for local utility or state rebates or state tax incentives on this same equipment. Check out the DSIRE database of state incentives for more information for Delaware, Pennsylvania and Maryland residents…or contact your state energy office or local utility for more information.
Additional tax credit information is available at the Tax Incentives Assistance Project (TIAP) website, including the latest information from IRS on the home energy-efficiency tax credits.
Criteria for New Heating and Cooling Equipment
In order to be eligible for the tax credit, heating and cooling equipment must meet specified measures of energy efficiency.
For Products Placed in Service between Jan. 1, 2009 and Feb. 17, 2009
Central AC and Heat Pumps:
Furnaces and Boilers:
Biomass Stoves (Corn Stoves):
For Products Placed in Service Between Feb. 18, 2009 and Dec. 31, 2010
Central AC and Heat Pumps:
Furnaces and Boilers:
Biomass Stoves (Corn Stoves):
For a complete list of qualified equipment, visit the Consortium for Energy Efficiency.
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% 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 the following Energy Star criteria:
- For a closed-loop system, 14.1 EER and a coefficient of performance (COP) of at least 3.3.
- For an open-loop system, 16.2 EER and 3.6 COP.
- For a direct expansion system, 15 EER and 3.5 COP.
- In addition, the geothermal heat pumps must include a desuperheater, which helps heat water, or an integrated water heating system.
Solar hot water heating and photovoltaic power systems placed in service by December 31, 2016 are also eligible for the 30% credit, as are small wind systems. More information on renewable tax credits is available from the Energy Star website.
About Horizon Services:
Horizon Services is the Delaware Valley’s leading plumbing, heating and air conditioning services company, providing repair, maintenance, sales and installation to homeowners and businesses in Delaware (New Castle County, Kent County), Pennsylvania (Delaware County, Chester County, The Main Line) and Maryland (Cecil County). Horizon is headquartered in Wilmington, DE. Website: http://www.horizonservicesinc.com.
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