November 20, 2009 12:00 am

Winterize and Win, Win, Win, Win

If you’re a homeowner, you can win in four big ways by making certain energy-saving improvements to your home now:

  • Save on energy costs this winter and for years to come.
  • Increase the value of your home.
  • Receive state tax breaks.
  • Cut your tax bill when you file your 2009 return next year.

Energy Conservation Improvements

A credit called the nonbusiness energy property credit is 30% of what you spend on eligible energy-saving improvements, for a top credit of $1,500 for the combined 2009 and 2010 tax years. Thus, spending $5,000 can generate a $1,500 tax credit. Eligible improvements include certain high-efficiency heating and air conditioning systems, water heaters and stoves that burn biomass, energy-efficient windows and skylights, energy-efficient doors, qualifying insulation, and certain roofs.

Labor costs for installing heating, cooling, and water-heating systems can be part of the cost used to figure the credit. Labor costs for so-called building envelope improvements (windows, doors, insulation, and roofs) are not taken into account.

The property must be new (not preowned). You can claim the credit whether you finance your purchase or pay cash.

Solar and Other Alternative Energy Improvements

A second credit, called the residential energy efficient property credit, is 30% of the cost of qualifying property; there is no dollar limit on the amount of the credit you can claim (other than for fuel cell property) with respect to eligible property installed after 2008. Qualifying property includes solar electric systems, solar water heaters, geothermal heat pumps, wind turbines, and fuel cell property. Labor costs are included when you figure the credit.

Nuts and Bolts

How do you know whether a window or other item will qualify for the federal tax credit? Check the manufacturer’s tax credit certification statement before buying or installing anything. (The certification statement usually is on the manufacturer’s web site or with the product packaging.) Caution: The manufacturer’s certification is not the same as the Department of Energy’s Energy Star label, and not all Energy Star-labeled products qualify for the tax credits.

For renewables, there are special standards. Solar water heating property must be certified by the Solar Rating and Certification Corporation (SRCC) or similar entity. At least half the energy used to heat your home’s water must be from solar power. Geothermal heat pumps must meet Energy Star requirements. Fuel cells must have an electricity-only generation efficiency greater than 30%.

If you make the right improvements to your home, you can claim both credits on your return. Use Form 5695, Residential Energy Credits, to figure these credits.

State Tax Breaks

Home energy improvements may entitle you to a variety of tax breaks on the state level. State level breaks can include:

  • State income tax credit
  • Property tax exemption
  • Sales tax exemption
  • Special financing to swing the purchase of the improvements

The breaks differ from state to state. To learn about the breaks you may be eligible for, go to the Database for State Incentives for Renewables and Efficiency (

Energy Savings

Want to know how much certain improvements can save you in energy costs? Go to the Energy Star web site ( to learn more.

Tax Glossary

Section 457 plan

Deferred compensation plan set up by a state or local government, or tax-exempt organization, which allows tax-free deferrals of salary.

More terms