Comeback for energy tax credits

Incentives are extended for home efficiency upgrades
By Megan McKoy-Noe, CCC
Comeback for energy tax credits

Installing a high efficiency heat pump water heater can earn you a tax credit. (Photo courtesy of: GE)

Ready to boost your home's energy efficiency without breaking the bank? The American Taxpayer Relief Act of 2012 revived energy efficiency tax credits to the tune of $500.

The credit offsets the cost of upgrades such as super-efficient water heaters and furnaces, boilers, heat pumps, central air conditioners, building insulation, windows and roofs.

This marks the third extension of the incentive initiated by the federal Energy Policy Act of 2005. The last round expired in 2011; the new legislation covers 2012 upgrades along with projects undertaken in 2013. There's a lifetime cap of $500, so if you've already received an energy tax credit, unfortunately you're out of luck for another one.

Here are a few ways to lower your electric bill and save at tax time.

Insulating factors

Recoup up to 10 percent of the cost of upgrading a home's envelope. The tax credit is capped at $500 for all improvements; labor costs are not covered. Eligible upgrades are:

  • Insulation materials
  • Systems designed to reduce a home's heat loss/gain
  • Exterior doors
  • Skylights and windows ($200 maximum for upgrades between 2006–2013)

Qualifying metal or asphalt roofs

Heating and cooling

Replacing your home's heating or cooling system? You could qualify for a tax credit ranging from $50 to $500 for units put in place between Jan. 1, 2012, and Dec. 31, 2013. Eligible improvements are:

  • High-efficiency water heaters (energy factor of at least 0.82 or thermal efficiency of at least 90 percent; $300 cap)
  • Electric heat pump water heaters with an energy factor of at least 2.0 ($300 cap)
  • Advanced main air circulating fan ($50 cap)
  • Qualifying central air conditioner ($300 cap)
  • Biomass stove (select fuels; $300 cap)

Tax credit basics

Energy tax credits are non-refundable — they can increase your refund by reducing the taxes you owe, dollar for dollar, and can be carried forward to reduce taxes in following years. You don't get a separate check for the credit amount.

File for energy tax credits with IRS Form 5695. Be sure to keep a Manufacturer Certification Statement (a signed statement from the manufacturer certifying that the product or component qualifies for the tax credit) for your records. Eligible upgrades must be made to a taxpayer's primary residence by Dec. 31, 2013.

Full details on qualifying upgrades and individual caps are at www.energystar.gov/taxcredits.

About the Author

Megan McKoy-Noe, CCC, writes on consumer and cooperative affairs for the National Rural Electric Cooperative Association, the service organization for the nation’s 900-plus consumer-owned, not-for-profit electric cooperatives.

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