My Indiana Home Blog

Fed up by her often too-hot or too-cold home in upstate New York, Maggie Maurer insulated her attic and replaced a creaky furnace in February. Right away, her utility bill dropped by nearly a third. But Maurer is looking past those monthly savings to the moment she’ll really strike it big: next tax season. A provision in the American Recovery and Reinvestment Act of 2009, passed in February, allows homeowners like Maurer to claim tax credits for up to 30% — or up to $1,500 — of the cost of energy-efficient upgrades like windows, doors, roofs and insulation. “These tax credits are the primary reason I went ahead with the project,” Maurer says.

Tax credits reduce the total amount taxpayers owe the government. They're more valuable than tax deductions, which offset only taxable income. Small projects like Maurer's get a limited boost, but the law contains no $1,500 cap for big jobs like geothermal heat pumps, solar panels, solar water heaters and wind systems. Installation costs for these uncapped projects count toward the credit until 2016. The uncapped credits can wipe out an entire tax burden, but Uncle Sam won't cut a check for any excess. In addition to the federal tax breaks, homeowners can find state and local tax credits for energy-efficient improvements at the Database of State Incentives for Renewables and Efficiency (DSIREusa.org).

Contractors hope the credits will spur homeowner investment. “The credits have definitely given us a little bump in geothermal projects,” says Troy Howard of Central Valley Mechanical in Utah. “Interest in solar and wind has picked up, and we’ve quoted more projects. But there’s still a lot of wait-and-see, given the down economy.”

Michael Rogers, senior vice president of market development with GreenHomes, the contractor and energy auditor that upgraded Maurer's house, says the tax credit has helped bring in business — to a point. "For some homeowners who already had energy-efficiency projects in mind, the tax credits have helped push them over the hump,” he says. “But it’s not like we’ve had people banging down our door because of the federal tax credits.”

A possible explanation: Although the program offers a sizable incentive, taking advantage of it can be tricky. For example, not all Energy Star-certified doors and windows qualify for the program's strict standards. Categories like solar- and wind-power systems did not initially list specific models of qualifying products; qualifying biomass stoves must have a thermal efficiency rating of at least 75% as measured using a lower heating value. Other attractive green-home improvements, like energy-efficient garage-door openers or metering devices to control power consumption, are not included.

Another potential pitfall could snare a homeowner with multiple projects in mind. Within the capped category, each homeowner has only $1,500 to claim, for all improvements combined. Homeowners should note that home improvements must be “placed in service” during the tax year. So, a roof installed by Dec. 31, 2010, would qualify; a new box of shingles wouldn’t. Homeowners should also keep the Manufacturer's Certification Statement saying the item qualifies for the tax credit. That will make life easier during the next DIY project: filing tax returns.

Here are some guidelines to help you gauge whether your home upgrades will qualify for the tax credit in the American Recovery and Reinvestment Act.

These projects qualify for a tax credit up to $1,500 (30% of cost through 2010):

• Window, door replacement: Must have a U-factor and solar heat gain coefficient (SHGC) of 0.30 or less, which is a more stringent requirement than for some Energy Star-certified products. (U-factor and SHGC express heat flow through an object, hence its insulating value.) See http://www.garagewownow.com for more information on which garage doors qualify for credit.
• Roofing replacement: All Energy Star metal and asphalt roofs qualify. Download “Find a Product” from Energy Star’s “Roof Products” page for more information. Synthetic roofs are not covered.
• Installing insulation: Insulation installations must last five years or have a two-year warranty. Insulated siding and cladding won't help you with a tax break, but vapor retarders will. It's not clear yet if spray foam and air sealing are covered, according to the Environmental Protection Agency.
• Heating and cooling systems: Not all Energy Star products will qualify for the tax credit. See the Consortium for Energy Efficiency product directory for qualified types of central A/C and air source heat pumps. Consult the Air-Conditioning, Heating and Refrigeration Institute for natural gas and oil-using heating products. Check pelletheat.org for information on biomass stoves.
• Water-heater replacement: Not all Energy Star gas-storage and gas-condensing water heaters will qualify for the tax credit. See “Residential Water Heaters Key Product Criteria” under Energy Star’s “Products” tab.

These projects qualify for a tax credit of $1,500 or more (30% of cost installation through 2016):

• Geothermal heat pump: All Energy Star geothermal heat pumps qualify for the tax credit.
• Solar water heater: All Energy Star solar water heaters qualify for the tax credit, but it’s unclear whether using them for radiant floor heating is allowed. No dice for swimming pools or hot tubs — the water must be used in the dwelling.
• Solar/photovoltaic panels: No federal restrictions on qualifying products available. Contact the Solar Energy Industries Association for further information.
• Small wind energy systems: No federal restrictions on qualifying products available. Contact the American Wind Energy Association for further information.