Residential Energy Tax Credits

October 8, 2009

Many of you have received marketing materials from contractors of various types encouraging you to take advantage of recent changes to the rules regarding residential energy tax credits.   This opportunity to make your home more energy efficient and save money on taxes was created by the American Recovery and Reinvestment Act of 2009 (the "Act"). 

The tax savings arise out of revisions to two separate credits. The first is known as the Credit for Non-Business Energy Property, which was not available for the 2008 tax year. It allows taxpayers to claim a credit equal to 30% (up from 10% prior to the Act) of the cost of qualified energy-efficient improvements made to their residences in 2009 and 2010. Qualifying property can include such items as high efficiency heat pumps, air conditioners, water heaters, windows, doors, insulation materials and certain roofs. For a more precise list of qualified improvements, please see the Energy Star website.    Originally, there was a lifetime cap of only $500.00 for this credit. However the Act made two significant changes to the cap: 1) the maximum amount was raised to $1,500.00; 2) the cap is now only applicable to the 2009-2010 tax years combined and not to a taxpayer’s lifetime.

The other credit is the Residential Energy Efficient Property Credit. This credit is equal to 30% of the cost of residential energy efficient property placed in service before January 2017. Examples of such property improvements include solar electric and water heating systems, small wind energy systems and geothermal heat pumps. Again, a more specific list of qualified energy systems can be found on the Energy Star website. This credit has already been extended through 2016, and applies to vacation homes in addition to principal residences. Previously, credits for solar, wind and heat systems were capped at $2,000.00, $4,000.00 and $2,000.00 respectively. However, the Act removed those caps entirely, providing the potential for substantial tax saving for environmentally conscious taxpayers.