Home Improvement Expert Danny Lipford

Energy Efficiency Tax Credits for Homeowners

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UPDATE: Extension of Federal Energy Efficiency Tax Credits

The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 – which was signed into law on December 17, 2010 – extended the federal energy efficiency tax credits to 2011, with the following changes:

  • $500 maximum overall tax credit when combined with any previous federal energy efficiency tax credits claimed from 2006-2010.
  • 10% of the cost of improvements for insulation, roofs, and doors – with a maximum credit of $500.
  • 10% of the cost of windows – with a maximum of credit of $200. Windows must meet new Energy Star requirements.
  • $150 maximum credit for furnaces and boilers – with minimum 95 AFUE requirement on all types.
  • $300 maximum credit for air conditioners, water heaters, and biomass stoves that meet requirements listed below.

Additional information is available on the Energy Star website at:

The American Recovery and Reinvestment Act (ARRA) of 2009 includes federal tax credits that can save you $1,500 or more when you make energy efficiency improvements to your home. Here’s the bottom line on what’s covered, and how you can qualify.

insulation

Who Can Qualify?

Taxpayers who make energy efficiency improvements to their principal residence during 2009 and 2010 using approved products can apply for a credit on their 2009 or 2010 federal income tax returns. A few of the improvements also qualify for a tax credit when installed on principal or second homes through 2016.

While the energy efficiency improvement tax credit can reduce the amount you owe on your federal income tax to zero, you won’t receive a larger refund than the total amount of income tax you paid for the year. In other words, if you will already receive a full refund of your federal income tax, you will not benefit from the energy efficiency improvement tax credit.

What Home Improvements Qualify?

In order for an improvement to be eligible for a tax credit, the product used must meet certain government established criteria for energy efficiency and come with a Manufacturer Certification Statement indicating that it qualified.

There are two basic categories of tax credits, each of which allow you to deduct 30% of the cost of the improvement, depending on the type of energy saving products you install:

  • Products that have a maximum tax credit limit of $1,500.
  • Products with no maximum limit.

$1,500 Tax Credit

The following energy saving home improvements are eligible for a tax credit of 30% of the cost of the improvement, with a maximum limit of $1,500 for both years combined. So to receive all of the tax credit, you would need to spend a total of $5,000. Improvements must be completed and put into service between January 1, 2009 and December 31, 2010 to qualify. You may lump several different energy saving improvements together in the tax credit. Products must be installed on an existing home that serves as the taxpayer’s principal residence. Qualified improvements include:

  • Insulation
  • Windows and storm windows
  • Exterior doors and storm doors
  • Skylights
  • Energy efficient HVAC systems and furnaces
  • Garage doors
  • Heat reflective roofing
  • Energy efficient hot water heaters
  • Biomass stoves (wood and pellet)

30% Unlimited Tax Credit

The following energy efficiency improvements are eligible for a 30% tax credit with no maximum limit. The work must be completed between January 1, 2009 and December 31, 2016. Unlike the $1,500 credit, these improvements can be to a primary residence or second home. Also, both new construction and existing homes are eligible. Qualified improvements include:

  • Geothermal heat pumps
  • Solar hot water heaters
  • Photovoltaic power systems
  • Residential wind energy systems

Product Requirements

To best way to be sure that the products you install meet the requirements for the energy efficiency tax credit is to obtain a Manufacturer Certification Statement stating that they qualify. Here are some general guidelines for each type of product.

Insulation

To qualify for a tax credit, insulation must:

  • Be primarily used for insulation purposes.
  • Be expected to last at least 5 years or carry a 2-year warrenty.
  • Meet 2009 International Energy Conservation Code (IECC) guidelines.

NOTE: Only material costs qualify for the tax credit on insulation. Installation costs are not covered.

Windows, Doors, and Skylights

To qualify for a tax credit, the NFRC approved label on the product must state that it has:

Deciding whether storm windows and storm doors qualify is more complicated, since their energy efficiency ratings must be combined with the IECC rating and climate zone of the window or door they cover.

NOTE: Only material costs qualify for the tax credit on windows, storm windows, doors, storm doors, and skylights. Installation costs are not covered.

Heating and Air Conditioning Systems

To qualify for a tax credit, HVAC systems must meet the following minimum energy efficiency rating or higher for Energy Efficiency Ratio (EER), Seasonal Energy Efficiency Ratio (SEER), Heating Seasonal Performance Factor (HSPF), and Annual Fuel Utilization Efficiency (AFUE):

  • Split Air Conditioner: EER 13 & SEER 16.
  • Package Air Conditioner: EER 12 & SEER 14.
  • Split Heat Pump: EER 12.5, SEER 15, & HSPF 8.5.
  • Package Heat Pump: EER 12, SEER 14, & HSPF 8.
  • Gas or Propane Furnace: AFUE 95.
  • Oil Furnace: AFUE 90.
  • Gas, Propane, or Oil Hot Water Boiler: AFUE 90.
  • Geothermal Heat Pump: Must meet Energy Star requirements.
  • Biomass Stove: Thermal efficiency rating of 75%.

NOTE: Both installation and material costs qualify for the tax credit on heating and cooling systems.

Garage Doors

To qualify for a tax credit, a garage door must:

  • Be installed on an insulated garage.
  • Have a U-Factor of 0.30 or less.
  • Solar Heat Gain Coefficient (SHGC) of 0.30 or less.

NOTE: Only material costs qualify for the tax credit on garage doors. Installation costs are not covered.

Heat Reflective Roofing

In order to qualify for a tax credit, roofing must:

  • Meet government Energy Star requirements for heat reflective roofing.
  • Be expected to last at least 5 years or carry a 2-year warrenty.

NOTE: Only material costs qualify for a tax credit on roofing. Installation costs are not covered.

Hot Water Heaters

To qualify for a tax credit, hot water heaters must:

NOTE: Both installation and material costs qualify for the tax credit on hot water heaters.

Solar and Wind Power Systems

In order to qualify for a tax credit, solar and wind powers systems must:

  • Provide electricity for the residence.
  • Meet required fire and electrical code requirements.

NOTE: Both installation and material costs qualify for the tax credit on solar and wind power systems.

Products that Do Not Qualify

The following items are not covered under the tax credit:

  • Ceiling fans
  • Clothes washers and dryers
  • Dishwashers
  • Electric tankless water heaters
  • Programmable thermostats
  • Refrigerators
  • Room air conditioners

For more information on whether a product qualifies for the energy efficiency tax credit, contact the manufacturer. For detailed tax information, contact the Internal Revenue Service at 1-800-829-1040 or your tax accountant.

Further Information



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24 Comments on “Energy Efficiency Tax Credits for Homeowners”

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  1. Gerry Rogers Says:
    April 16th, 2009 at 2:48 pm

    Great article, Danny. Homeowners need to know that the DOE Building Technologies Program has a multi-year plan to move toward zero energy homes by 2020, and the need for energy conservation in our homes is at the top of the list.

    For those who want the details, there’s great information at
    http://www.eere.energy.gov/

    And I’ve been blogging about tax credits specifically for windows and doors at http://askmrrogers.com/category/tax-credit.

  2. Amanda Says:
    April 29th, 2009 at 7:47 pm

    I hope a lot would be entice to try save energy since they would benefit from it twice-a tax refund and paying less in their electricity consumption. Gerry, its 11 years from now, I hope we would push thru with the zero energy for homes and thus save mother earth from further destruction.

  3. john Says:
    July 14th, 2009 at 1:12 pm

    Is there a tax credit or some type of incentive for replacing galvanized piping?

  4. Official Comment:

    Ben Erickson Says:
    August 4th, 2009 at 12:15 pm

    Hi John,
    I don’t know of any tax credit that is available for replacing galvanized plumbing.

  5. Mitzi Carlson Says:
    September 29th, 2009 at 5:50 pm

    My new basement bathroom installation will have 2 exterior walls which are mostly underground. Even though I have never had any seepage or moisture problems with these bare walls (I did paint them with white UGL to lighten up the walls, not to prevent moisture from entering) and the area where I am installing the bathroom is not really cold in winter, should I insulate and put a vapor barrier between the framing members along these exterior walls? I have never had a major moisture problem in my walk-out basement so far and even had a home inspector in to look at some mildew on a wall in one room which he determined was caused by interior condensation and lack of ventilation in that room. (I have a dehumidifier in that room now.)

    If I do need to insulate, what r-value insulation should I use? Would that type of insulating job qualify for the tax credit if I buy the proper rated insulation? Should I use a vapor barrier between the insulation and the drywall?

  6. chris perz Says:
    February 18th, 2010 at 1:40 pm

    In regards to new construction home credits, the home items such as windows, skylights etc will qualify if you payed additional to have the better low-e energy models installed above and beyond what the builder would have installed originally. I just got off the phone with the irs for confirmation; and this is covered on their form 5695 online.

  7. karon Says:
    March 22nd, 2010 at 7:57 am

    I just purchased a JeldWen window from Home Depot yesterday. I was told it would qualify for the tax credit. After installation, we took the NFRC label off the window to go to the web site for the tax credit. The U factor on our window is 0.32. As I read the information it has to be less than 0.30. I am very disappointed that Home Depot misrepresented this product.

  8. Susan Schino Says:
    May 3rd, 2010 at 3:34 pm

    Are any new roofing materials eligible for a tax rebate on a second home?

  9. Official Comment:

    Ben Erickson Says:
    May 4th, 2010 at 7:15 am

    Hi Susan,
    No, the tax credit for energy efficient roofing only applies to your primary residence.

  10. Michael Pronold Says:
    July 10th, 2010 at 1:48 pm

    Is there any federal tax credit for insulation and/or furnace replacement for a rental property? If not, is there any in the legislative pipeline?

  11. Official Comment:

    Ben Erickson Says:
    July 12th, 2010 at 8:37 am

    Hi Michael,
    As far as I can determine, none of the federal energy efficiency tax credits apply to rental properties, nor have I heard of any pending legislation for them.

  12. Randall Hummel Says:
    October 27th, 2010 at 5:13 am

    Does any used material qualify for the tax credit. for instance Insulation,solar panels, wood stove.

  13. Official Comment:

    Ben Erickson Says:
    October 27th, 2010 at 9:20 am

    Hi Randall,
    As far as I’m aware, used products can’t be claimed on the Federal Energy Efficiency Tax Credit.

  14. Bennie Means Says:
    November 24th, 2010 at 10:47 am

    Sir,
    Iam restoreing my home in Mississippi what are some of the tax break I can rec. for thie year.I will be replaceing the roof, and 90%on the inside can you please help

  15. John Says:
    January 26th, 2011 at 8:16 pm

    I purchased and installed a new exterior door in 2010 that qualifies for the energy tax credit. I had this door professionally painted before installing. Can I include the painting costs on tax form 5695? The instructions say you can not include installation costs, but it doesn’t mention paint.

  16. Official Comment:

    Ben Erickson Says:
    January 27th, 2011 at 2:08 pm

    Hi John,
    My guess would be that painting the door would be considered part of installation, even if it’s done before the door is installed, but I suggest you call the IRS hotline at 1-800-829-1040 to find out for sure.

  17. DICK ERICKSON Says:
    April 2nd, 2011 at 2:57 pm

    Ben,
    You’ve sad that geothermal heat pumps are a qualified tax credit expenditure for rental homes. I find only prohibition for such tax credits. Can you cite the IRS source permitting this credit? I have installed geothermal heating/cooling units in a new twin townhouse and am living in one unit. The other unit is a rental and I’d like to claim the 10% credit for installation.

  18. Official Comment:

    Ben Erickson Says:
    April 2nd, 2011 at 8:25 pm

    Hi Dick,
    The info about rentals came from the federal Energy Star site, but when I went back and looked at it again, they now say that rentals are not included. Sorry for the incorrect info, I’ve updated my comment. Thanks for the heads up!

  19. Doug Callahan Says:
    August 1st, 2011 at 9:45 am

    Hi. Replacing roof on home that i am currently renting out but will be living in in about two years. Can i take the energy decution for the new roof and windows at that time?

    Thanks

  20. Casa Says:
    February 13th, 2012 at 7:07 pm

    We are building a new home. If I am reading the energy tax credit correctly, the energy efficient windows and doors used in construction are not eligible right? How about additional attic insulation and garage doors that will be installed a few months after we move into the home if we have the money for it.

  21. Marjorie Chouinard Says:
    March 28th, 2012 at 8:03 am

    Is there a $150.00 tax credit for new energy efficient furnace and AC installed in second home?

  22. danette Says:
    May 9th, 2012 at 7:29 am

    Is the energy credit still available for energy star roofing installed in 2012? Also, can we claim the credit if the roofing was reimbursed by our homeowners insurance?

  23. Tom Says:
    May 19th, 2012 at 2:24 pm

    Same question. Just installed energy star roofing on primary residence in May of 2012. Any federal or state rebates available?

  24. Official Comment:

    Ben Erickson Says:
    May 19th, 2012 at 4:25 pm

    Hi Tom,
    As far as I’m aware, the only tax credit still in effect is the 30% unlimited tax credit through 2016 for geothermal heat pumps, solar hot water heaters, photovoltaic power systems, and residential wind energy systems. I don’t know any any still available for roofing.

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