CAN YOU AFFORD TO MAKE YOUR HOME MORE ENERGY EFFICIENT? PART I

Courtesy of your federal and state government, with an emphasis on the state, you may qualify for tax incentives to make energy-efficient home improvements.   The tax credits aim to expand residential green energy use by making upgrades more affordable and accessible.   You might think of them as rewards to homeowners who are ready, willing and able to become more energy efficient.

Minimum qualifications

To qualify for green energy tax credits, you must own your home, which must also be your principal residence.   Condos and cooperatives also qualify for the credit.   Rental properties and new construction do not qualify.   Your home must be located in the United States.

Don’t overlook state subsidies

Before you run off and invest in what can be expensive upgrades, particularly solar energy projects, do your homework on state subsidies, which can be more generous than federal in offsetting your costs.   Go to www.dsirusa.org to find out what Illinois offers.

Tax deduction versus tax credit

Know the difference:   A tax deduction reduces the amount of income taxed (e.g.  you earn $50,000 a year; with a $1500 tax deduction, your taxable income would be $48,500).   A tax credit means you pay less taxes (e.g. you owe $3000 in taxes at the end of 2009; with a $1500 tax credit, you would then owe $1500).

The numbers

How would you like a tax credit of up to 30% of your total costs for making energy-efficient updates, up to $1500?  You’ll have through December 31, 2010 to get the credit to implement energy-efficient projects, like insulation, sun-reflective roofing, efficient windows and doors, non-solar water heaters and more.

For solar energy upgrades, the credit is more generous (but also more cumbersome-you must go through hoops to qualify for the credit).   If you meet requirements and plan on using solar hot water, you’ll get a tax credit for up to 30% of the cost of the installation of a solar hot water heater (with no cap) through 2016.   Solar panels also apply for the 30% credit (with no cap on the project costs) as long as they’re up to code.

Government Forms

Look for federal government form 5695 to get started.    Be sure to get information related to home projects and NOT commercial projects.   Some tax incentives are strictly for commercial use.