Energy Efficiency Tax Credits for Homeowners
By: Danny Lipford
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.
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:
- Windows and storm windows
- Exterior doors and storm doors
- 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
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.
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.
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:
- Gas, Oil, or Propane Water Heater: All Energy Star approved tankless models. No storage tank models qualify.
- Electric Heat Pump Water Heater: Energy Star approved models.
- Solar Water Heater: Energy Star approved models that are not used for swimming pools or hot tubs.
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
- Electric tankless water heaters
- Programmable thermostats
- 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.
- Federal Tax Credits for Energy Efficiency (Energy Star)
- Consumer Energy Tax Incentives (Dept. of Energy)
- American Recovery and Reinvestment Act (EERE)
- Can You Claim the Energy Tax Credit if You Receive a Tax Refund?