Recent legislation has expanded the number and types of energy credits available to both individuals and small businesses for the 2010 tax year, and some of them have been expanded into 2011 and beyond. While these credits won't offset the total cost of making energy-efficient upgrades, they could help to decrease the amount of taxes owed, or even contribute to a refund. Here is a summary of the important ones to know about. (For related reading, also take a look at 8 Tax Cuts Set To Expire In 2011.)
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The 2009 Recovery Act aimed to stimulate the green economy by expanding existing home energy credits. Credits, unlike deductions, can directly increase refunds or reduce the total tax bill. As of the date of this writing, there are two chances to get a little back on your home energy investments:
- Non-Business Energy Property Credit
According to the IRS website, "This credit equals 30% of what a homeowner spends on eligible energy-saving improvements, up to a maximum tax credit of $1,500 for the combined 2009 and 2010 tax years." Certain appliances and materials qualify, including select water heaters and stoves, and the cost of installation can be included in a few instances. A full recap of the benefits can be found in this IRS summary.
Looking ahead to 2011, this credit has been extended as part of the renewal of the Bush tax credits. The amount has been reduced, however, to 10% of the purchase price of materials. In addition, the caps are much more rigid, equaling just $200 for energy-efficient windows and $300 for a water heater, for example, and even those items without a cap are subject to the $500 total claimable amount. A full fact sheet with the details is available from the American Council for an Energy-Efficient Economy.
- Residential Energy Efficient Property Credit
In addition to the above credit, there is a second benefit to "going green". Homeowners who install certain solar, geothermal, wind and fuel cell technologies can obtain a credit of up to 30% of the cost of the equipment. Except for the fuel cell upgrades, installation and labor charges are included in the credit, and unlike the Nonbusiness Energy Property Credit, there is no cap.
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Credits for upgrades made under the property credit are available, in most cases, until 2016. They can be taken on improvements made to both first and second homes, except for fuel cells (which only count for a primary residence.) Energy Star has a nice breakdown of the rules for energy systems upgrades.
Business owners can refer to this checklist of incentives designed specifically for them in this summary from the American Recovery and Reinvestment Act.
Home and business owners wanting to make green changes should be cautious before spending any money on improvements. The IRS warns that, "Not all energy-efficient improvements qualify for these tax credits," and recommends that individuals research and verify the manufacturer's tax credit certification statement before purchase or installation. Additionally, you should receive a receipt and a statement of certification after the job has been done, so that you can be prepared in the event of an audit. The IRS and the Department of Energy both warn that a manufacturer's certification is different from the Energy Star label; not all products with the Energy Star will qualify.
The Bottom Line
While there number of opportunities to get some green for your energy, they are slowly slipping away. If you haven't claimed all your upgrades in 2010 or prior, now is the time to get the best return. Otherwise, 2011 may be your last chance to capitalize on home upgrades that could save money - and the environment. (For additional information, also see 7 New Tax Breaks For 2011.)
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