Energy Tax Credit for Energy Efficient Home Improvements

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On February 17, 2009 President Obama signed the American Recovery and Reinvestment Act of 2009 into law, thus providing great benefit to the home improvement industry and consumers alike. The following summarizes the Act as it relates to the products we sell and should address any questions you may have. Feel free to contact us if you need additional information.

How much is the Tax Credit
30% of the cost of the goods, subject to a maximum $1500 ceiling. The 30% can not be applied against costs of installation – only against the cost of the products.*

Why a Tax Credit is better than a Tax Deduction

Tax Deduction

A tax deduction reduces your adjusted gross income. How much that deduction is worth to you depends on your marginal income tax rate.

For example, if you are in the 25% tax bracket, a $1000 tax deduction means you will pay $250 less tax that year.

Common tax deductions include Traditional IRA and 401(k) contributions, as well as mortgage loan interest, student loan interest, and charitable donations.

Tax Credits

A tax credit is a dollar for dollar reduction in your income taxes regardless of your tax bracket. If you have a $1000 tax credit, you will pay $1000 less tax that year. The Stimulus Package benefits qualify as Tax Credits in 2009 and 2010.

How The Tax Credits Work

1. The Act covers energy saving home improvements. This is not to be confused with Energy Star rated products. To qualify for the Tax Credit, products must meet more stringent requirements than the Department of Energy has mandated for the Energy Star Program. Windows and Doors, for example, must have a U-factor and Solar Heat Gain Coefficient (SHGC) less than or equal to 0.30. The lower the U-Value the better insulation a window provides. Please be very careful with this condition, because contrary to what many “experts” have stated, this does not include everything with an Energy Star label on it.
   
2. Qualifying home improvements must be installed and ready for use between January 1, 2009 and December 31, 2010 at the homeowner’s principle place of residence. In the event a purchase was made PRIOR to the law taking effect, the homeowner would still benefit as long as the products are installed and payment is made in 2009. The $1,500 tax credit is a one-time only credit. In other words, if a homeowner purchased windows qualifying for the full $1,500 credit in 2009 and then purchased a roof that also qualified for a $1,500 credit in 2010, he or she would be eligible to claim only a single credit of $1,500.
   
3. However, a number of energy-efficient home improvement products, such as certain solar-related products, are not subject to this $1500 tax credit, and thus can be used in conjunction with other products. For example, if a homeowner purchased windows qualifying for the full $1,500 credit in 2009 and then also purchased a thermal solar water heating system in 2009 that qualified for its own 30% tax credit, he or she would be eligible to claim both tax credits.

How to Claim the Credits

Homeowners seeking to claim one or more of the available tax credits should complete IRS Form 5695 for the tax year in which the improvement is placed into service. For record keeping purposes, it is advisable for homeowners to retain the work orders or receipts for the qualifying improvement. Taxpayers should also keep a copy of the Manufacturer Certification statement (a signed statement from the manufacturer certifying the product qualifies for the Energy Tax Credit) for their records, although the statement does not have to be submitted with the taxpayer’s tax return.

* If your work order does not break down the cost of product vs. labor, use the following chart to determine the eligible amount for the material cost:

Product Materials
Windows 80%
Doors 80%
Siding 21% (The tax credit only covers Insulation Cost, not the actual Siding)