One way to save on your 2009 tax bill next April is to take advantage of the energy tax credits available on primary residences. It’s a good way to save now on your energy bills, save later on your taxes and a great way to save energy and help the environment. Tax credits are available to those individuals who purchase and install energy efficient improvements and/or residential energy property. A tax credit is a dollar for dollar reduction in a taxpayer's tax liability, realized when the taxpayer files his return.
Energy efficient improvements, sometimes referred to as "building envelope components," are items such as insulation, windows, doors, and metal and asphalt roofing placed on a building. The improvements must be installed in or on the taxpayer's principal residence, which must be located in the United States. The taxpayer must be the original user of the improvements, and the building component should be expected to remain in use for at least 5 years. There are technical specifications defined in the tax code for each type of improvement, so you may want to consult your tax advisor to be certain what you intend to purchase qualifies.
Residential energy property is defined as energy efficient building property, including but not limited to: natural gas furnaces, propane furnaces, oil furnaces, advanced main air circulating fans, hot water heaters, and central air conditioners. The property must be placed into service in tax year 2009 and/or 2010 and must be installed in the taxpayer's principal residence, meaning residential energy property installed in second homes, vacation homes, and rental properties is not allowed when calculating the credit. Businesses are also not entitled to the credit. Again, there are technical specifications each type of property must meet to be eligible for the credit.
The total credit allowable is subject to limits. A taxpayer is allowed a credit for 30% of the cost of qualified energy property and qualified energy improvements in the year they are installed. This is further limited to a maximum credit of $1,500 for both the 2009 and 2010 tax years combined. Meaning, if a taxpayer spends at least $5,000 on energy property in 2009 and 2010 combined, they will receive the maximum credit allowed for an individual.
It’s a good idea to look at the combined energy savings and the tax credit to determine if upgrading your primary residence’s building envelope or energy property makes economic sense for you. In addition to the economic benefit, of course, it will reduce your carbon footprint and that’s “priceless.”
