Posted: August 2009

Nobody has to tell you that remodeling a home can be expensive, but if you're remodeling to increase the energy efficiency of your home, recent federal government action taken in February 2009 means you don't need to take on the total cost all by yourself. There are energy tax credits available that you can take full advantage of as a green homeowner.

This past February 17th, building on a tax incentive plan begun by the Bush administration, the government passed the Recovery and Reinvestment Act. This new act not only restarted the incentives, but expanded and extended the previous legislation to provide energy-efficient remodelers with even more significant incentives.

Under the old (and expired) legislation, homeowners had been allowed to claim a remodeling tax credit equal to 10 percent of the cost of energy-efficient windows, doors, roofing, insulation, furnaces, air conditioning systems and heat pumps up to a lifetime cap of $500. However, the new Recovery and Reinvestment Act legislation significantly expands the upgrades that are eligible for energy tax credits, and extends the program until the end of 2010. Under this new legislation, the maximum lifetime credit a homeowner can receive has increased to $1,500, and the per-item credit has also been increased up to 30 percent of the cost. In addition, the program was made retroactive to January 1st, 2009, so if a product met the earlier criteria and had been installed between January 1st and February 17th, 2009, it also qualifies for the new and larger energy tax credit.

New Legislation

Here are some of the highlights of the new energy tax credit legislation:

•    The legislation provides homeowners with an energy tax credit rather than a tax deduction. From a personal finance perspective, a tax credit is better than a tax deduction, since it actually reduces the amount of tax you owe, rather than reducing the amount of your taxable income. It is easy to see the difference if we use some numbers. Let’s say you owe $1,000 in federal tax, but have a $500 tax credit, so you end up only owing the government $500. However, if you have a taxable income of $40,000 and a $500 tax deduction, the deduction only reduces your taxable income to $39,500. As you can see, since an energy tax credit provides a benefit in after-tax dollars, its actual value is even greater than the $1,500.

The content of this article was provided courtesy of freelance writer Murray Anderson. Murray has been working in home repair and maintenance for the past 30 years. His hands-on experience includes building decks, sheds, and fences, repairing and installing toilets, plumbing and light fixtures, and transforming bare concrete basements into warm, bright family rooms. His work has been featured on web sites such as DoItYourself.com and MyHomeImprovement.com.
 

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