Tax Breaks for Going Green

Saving on your taxes isn’t the reason most people choose to go green, but every little bit helps. Most of the tax breaks are for making your home more energy efficient - saving fuel or electricity - from the Energy Policy Act of 2005 (EPACT). These home improvement tax breaks are only effective from Jan 1, 2006 to Dec 31, 2007. So you can claim these tax credits (as opposed to tax deductions) on your 2006 and 2007 tax returns and that’s it.

A tax credit is a better bang for your buck than a tax deduction because “a tax credit reduces tax dollar-for-dollar, while a deduction only removes a percentage of the tax that is owed. “.

Well alright then. Here’s a tax-saving summary from the US Department of Energy website:

That all sounds really great, but you should know there are some catches to counting up your credits:

The credit is usually 10 percent of the cost, though there may be separate limits for specific devices. For example, up to $50 can be claimed for a main circulating air fan and up to $150 for a natural gas, propane or oil furnace, or hot water boiler. No more than $200 of the credit can be for windows.

The credit is limited to $500 for the 2006 and 2007 tax years combined. So if you claim the entire $500 credit for 2006, you won’t get the credit for 2007.

Separately, taxpayers can take a credit of 30 percent of the cost of a solar panel, solar water heater or fuel cell power plant to heat their homes, up to a maximum credit of $2,000. No part of such a system can be used to heat a pool or hot tub, however.

To be eligible for a residential energy credit, the device has to be “qualified energy property,” meaning it must meet criteria established by the 2000 International Energy Conservation Code and its supplements or, for windows and certain other items, bear the Energy Star label.
– AP article on MSNBC

You should also keep your documentation as a precaution “just in case” - proof of purchase plus any promotional material or certifications from the manufacturer.

The EPA estimates that by using efficient materials you can save up to 30% in energy costs. Before jumping in and investing in the high end solutions, you should audit of your home to determine where energy is being wasted.

Most local utilities will perform one free. It highlights your home’s trouble spots where the most energy is being wasted. For a couple hundred dollars, private companies improve the service through the use of thermal imaging to graphically map out on a micro level the points at which energy loss occurs … The biggest perpetrators are almost always windows and doorways …
– Matt Woolsey on Forbes.com Real Estate

And of course, windows and doors are eligible for credit.

Improving the energy efficiency of your home saves energy, saves money, and reduces greenhouse gas emissions. Plus you get a tax credit.

For more visuals, check out this slideshow on Tips For Greener, Less Expensive Living on Forbes.com.

This entry was posted on Wednesday, March 7th, 2007 at 11:11 am and is filed under Going Green, Remodeling, Green, Home Improvement, Green Tips, Renovations, Energy Savers. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.