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Energy-Efficiency Tax Credits Expire Soon

By Jason Alderman
Senior Director, Global Financial Education, Visa, Inc.

If you haven’t already jumped on the home energy-efficiency bandwagon, the good news is that several federal energy tax credits originally slated to end in 2010 were extended through December 31, 2011; but the not-so-good news is that these credits are worth significantly less and are more restrictive than before. All is not lost, however, since several additional credits (outlined below) remain in effect through 2016.

Here’s how the soon-to-expire energy tax credits work:

You may claim a credit for 10 percent of the total cost of various home energy-efficiency products for your existing primary residence, including: insulation; heating, ventilation and air conditioning systems; metal and asphalt roofs; energy-efficient windows, doors and skylights; biomass stoves and non-solar water heaters. There are a few restrictions, however:

  • The maximum combined credit is $500 (10 percent of $5,000 in total cost) for all allowable products purchased between 2006 and 2011. Thus, if you’ve already claimed credits over $500 in previous years when limits were higher, you cannot file.
  • Certain items have lower allowable tax credit maximums. For example: windows are capped at $200 in total credits; furnaces and boilers – $150 maximum (must have an annual fuel utilization rate of 95 or greater); central air conditioner – $300 maximum; water heater – $300 (within certain efficiency limits); and biomass stoves – $300.
  • You cannot claim a credit for labor costs.
  • Energy tax credits are nonrefundable, which means you can only claim a credit to offset taxes you owe for the year; also, if you are subject to the Alternative Minimum Tax, your credits may be limited.
  • Tax credits may only be claimed once and are limited to the year in which you purchased the item.                                                                                                                                                                                                                                                          
  • Energy tax credits will continue to be available for geothermal heat pumps, solar energy systems and wind energy systems installed at new or existing principal or second homes by December 31, 2016. The credit is for 30 percent of cost, with no upper limit.

In addition, a credit continues for fuel cells at 30 percent of cost up to $500 per kW of power capacity (for primary residences only). And tax credits are still available on certain fuel-efficient vehicles. See this site for details. For full details on available tax credits, visit this Energy Star site.                                                                                                                                                                                                                                               

Tax advantages are just one of many reasons to conserve energy. Besides helping to protect the environment and reduce your carbon footprint, you can also save big bucks. According to the Department of Energy, you can reduce your heating and cooling bills about 10 percent per year by simply turning your thermostat back 10°–15° for eight hours, either manually or using a programmable thermostat – say, when you’re asleep or at work. Other cost-saving ideas include:

  • Insulate your home. Up to 30 percent of heated or cooled air can be lost through leaks, so add weather stripping and caulking wherever air escapes.
  • Heating water is the third-largest home energy expense, after heating/air conditioning and electrical appliances, so try lowering your water heater temperature to 120º F or lower.
  • Use Energy Star products, which consume up to 50 percent less energy and water than standard models. Go to Energy Star for information on finding local retailers, rebates offered by Energy Star partners and utilities, tax credits and more.
  • Clean or replace furnace filters monthly during the winter and dust refrigerator coils every few months to ensure more efficient operation. Also, clean the dryer lint trap after each use.
  • Install tempered glass doors and a heat-air exchange system to your fireplace to re-circulate warmed air; and always close the damper when not in use.
  • Replace old windows with new high-performance, dual-pane windows.
  • Compact fluorescent lamps use 75 percent less energy than incandescent bulbs, last six times longer and save over $40 in electricity costs over the lifetime of each bulb.
  • Run full loads in your washer and dryer and use cold or warm water whenever possible.
  • Run full dishwasher loads and use the unheated drying cycle if it has one.
  • Turn off lights, computers, televisions and other electronic equipment when not in use.

And finally, if you’re a low-income household and can’t afford to weatherproof your home, find out if you’re eligible for the Department of Energy’s Weatherization Assistance Program (WAP). If you’re accepted, a professional weatherization crew will conduct a home energy audit where they’ll analyze your utility bills, test for infiltration of outside air, inspect your home and equipment for safety and determine the most cost-effective energy conservation measures for your home.

Depending on what they find, the agency will then conduct needed repairs and equipment installation, which might include: installing wall, floor and attic insulation; sealing and repairing ducts; reducing air infiltration and pressure imbalances; and tuning, repairing or replacing heating and cooling systems, as needed. 

To learn more about WAP, see my previous blog, Home Weatherproofing Aid for Low-Income Families. Also, even if you aren’t eligible for WAP, you may qualify for short-term utility bill assistance through the Department of Health and Human Services’ Low-Income Home Energy Assistance Program.

Bottom line: Take advantage of financial incentives available to make your home more energy efficient – just in time for winter’s chill.

This article is intended to provide general information and should not be considered legal, tax or financial advice. It’s always a good idea to consult a legal, tax or financial advisor for specific information on how certain laws apply to you and about your individual financial situation.

Follow Jason Alderman on Twitter: http://twitter.com/PracticalMoney

Views expressed are the personal views of the author, and do not represent the views of the National Foundation for Credit Counseling, its employees, its members, or its clients.

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