Personal Finance, The Home 

Tax Credit for Energy Saving Home Improvements

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One of the things I’ll need to do in the next year or two is replace the windows on my brand-spanking (to me) house, which is a few hundred bucks a pop. At eight windows, that’s a lot of hundred bucks. So when I read about Sandra Block’s (personal finance writer for USA Today) article about the new energy bill and how it affects me, I smiled (only a little). She explains how the new energy bill gives [small] tax breaks for “energy-saving home improvements!” Specifically, you get a tax credit of 10% of the cost of the improvement (lifetime cap of $500), so this could come in handy. The article also has energy saving tips (many are common sense) that might come in handy.

The new energy bill gives a tax credit which goes straight to your pocket, as opposed to a deduction which just reduces your taxable income. So if you get a $100 deduction, you only get back a fraction of that depending on what your tax bracket is. If you get a $100 tax credit, you get a newly minted Ben Frankling (well, a check, but you get the idea).

You must make the improvement between 12/31/2005 and 1/1/2008 and here are valid upgrades:

  • Insulation that reduces loss of heat or AC.
  • New exterior windows (capped at $200, boo!)
  • “Highly efficient” central AC, heat pump, or water heater (capped at $300)
  • “Highly efficient” furnace or boiler (capped at $150)
  • Solar-powered hot-water systems: You can get credit for 20% of the cost (capped at $2,000)

She also mentions getting your home “energy rated” which is something I’d never heard of before – reputable ones (i.e. certified) are on this list and they run up to $450!

Here are their energy saving tips:

  • Replace higher wattage bulbs with lower bulbs: I have a lot of fixtures with multiple bulbs, I just twist off a few of them because usually they’re too bright anyway with them all on.
  • Use ceiling fans
  • Clean/replace AC filters monthly: I didn’t realize you had to do it this often, but when I checked my filter was all clogged up. They only run a little more than a dollar a piece but I might go with a cleanable one in the future.
  • Install programmable thermostat: Having one of these is awesome because I never liked the idea of running the AC or heat when no one was going to be home all day, it feels like a huge waste.
  • Close and open blinds/shades based on the season (open for winter, closed for summer)
  • Caulk and weather-strip doors: This is huge, I could hear air coming in and out of windows and doors before I caulked them this past weekend. Plus, this prevents bugs from crawling into your house too.
  • Use sleep features on computers or leave them off.
{ 9 comments, please add your thoughts now! }

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9 Responses to “Tax Credit for Energy Saving Home Improvements”

  1. Matt says:

    I get rebates off of my monthly electric bill for having air conditioning and water heater “control.” Since I rent, I didn’t even know that I had it until my July/Aug bill came. I guess they only turn it on during the dog days of summer, but hey, that’s $15 I will gladly not pay to them.

  2. Dieter says:

    I’m using those low energy light bulbs, they give more light and consume less. However, they don’t look that good, but I don’t care about it.
    I replace my AC filter every month, and buy the 10$/piece. I don’t try to save money on health related things and quality food…


  3. Saving your wealth
    Blueprint for Financial Prosperity has a great article on the new » Tax Credit for Energy Saving Home Improvements that is very timely as we head into a winter season that could see natural gas and heating oil bills eating up whatever financial gains…

  4. September 5th Financial Carnivals
    This weeks carnival tour starts with the Carnival of Personal Finance hosted by Savvy Saver. My recent post summarizing the history of my Special Situations Real Money Port was featured in this weeks Carnival of Personal Finance.
    I have been think…

  5. Lisa says:

    Hmmm…. I had energy efficent windows installed in 2005, My Tax prep. did not even ask if I had made any home improvements, would it it be worth amending…. the windows cost about 1500 dollars. Any suggestions?

  6. jim says:

    Lisa – Unfortunately, this rebate only applies for energy saving improvements between 12/31/2005 and 1/1/2008, but you can save the receipts as you can use it to increase the cost basis of your home you sell. For example, if you bought your home for $100,000 and then sell it for more than $350,000… you would pay taxes on the difference between your sale price and the the single exclusion ($250,000), you could increase the cost basis of your home to $101,500 and reduce the taxes a little.

  7. susan says:

    I had my house pointed in 2006. Would that be considered as a deduction?

  8. bob says:

    I put stone on my house can I put this on my energy duction tax

  9. Ottawa Renovations says:

    Great article,

    In Ontario they have excellent energy programs, i’ve had over 3K returned to me on my most recent renovations because I replaced all windows, furance, toilets, etc.
    They bring a guy from the city that does some tests and in the end depending on how well your property improved in the “R” rating you get a refund from the government.
    Great incentive for home improvements.

    I cam currently interested in Solar powered roof systems, that will defeiniting help with energy savings!

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