Federal Consumer Energy Efficiency Tax Payback

Many wonder when we will be in a position to afford the conversion to an energy efficient economy. New equipment is needed. Household installations are required. Home improvement projects to gain greater energy efficiency cost money, which is in short supply these days. In this case, the federal government might be able to help you. Tax credits of up to $500 are now available for the purchase and sometimes, the installation of energy efficient equipment.

The Federal Consumer Energy Efficiency Tax Credit program has changed from 2010. Previously tax credits were available for 30% of energy efficient equipment and installation costs for the first $1,500 of costs. For 2011 taxes credits are available in various programs depending on the type of equipment purchased.

The most generous credits are for solar energy systems, small residential wind turbines and geothermal heat pumps. For this equipment there is a tax credit of 30% of costs with no upper limit for existing homes and new construction, both for primary residences and for second homes. For solar systems the credit is available for solar water heaters and solar panels that provide energy for the residence but not for swimming pools or hot tubs. This and all other energy credits described here are claimed on 2011 IRS form 5695 and expire December 31, 2016. Small wind turbines producing no more than 100 kilowatts also qualify for the 30% credit.

A lesser credit of 10% of cost up to $500, with specific caps is available for biomass stoves; heating, ventilation and air conditioning systems; insulation, roofing, water heaters and windows and doors. The insulation credit, 10% of the costs up to $500, applies to bulk insulation products including batts, rolls, blow-in fiber, and rigid boards; expanding spray and pour-in-place; weather stripping, canned spray foam, air sealing caulk and house wrap, but does not include installation costs.

Credits capped at $300 are available for air source heat pumps and central air conditioning. Gas, propane, oil or electric hot water boilers and gas, propane or oil furnaces are capped at $150. Tax credit eligibility for this equipment is established by a Manufacturer Certification Statement which should be included in the product package. You should keep it in your records but the Statement does not need to be submitted to the IRS.

Efficient windows, doors and skylights can reduce energy bills. A tax credit of 10% of the cost up to $500 is available, but windows are capped at $200. The equipment must be ENERGY STAR qualified.

Residential fuel cell systems qualify for a 30% credit for the cost of equipment for the primary residence, up to $500/0.5 kW of power capacity. Fuel cells provide a more efficient, cleaner alternative choice for fossil fuel combustion.

One onerous feature has been added in the legislation instituting these changes - a $500 lifetime limit. If you received over $500 in energy tax credits between 2006-2010 you have no further eligibility.

Energy credits and subsidies are being withdrawn or attacked in local and state legislatures and congress. More information in future posts will detail how the EIA was used to provide "skewed" data to Congress regarding energy subsidies and describe the local legislative and Congressional attack on energy credit programs.

Note: This article is an overview and does not substitute for the advice of your tax accountant.

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I am a Seattle-based writer. Energy efficiency and the achievement of human potential are my goals. I have worked as a legislative aide and a database manager, and recently started building a money- and energy-saving household goods online store featuring sensible and affordable home environment solutions including ENERGY STAR qualified products. Contact: info@greenbespoke.com Twitter: @Greenbespoke @SaveWattsatHome