If escalating energy costs have you looking for ways to reduce your gas and electric bills, here are some tips on how you can cut costs and reap tax-saving energy credits as well.
A great way to cut energy costs and save up to $1,500 in federal income taxes is to make certain energy-efficient improvements to your home. But, you need to be sure to pick the right product.
The Nonbusiness Energy Property Credit equals 30% of what you pay for (a) qualified energy-efficient improvements (such as certain energy-efficient insulation, windows, doors, and roofs) and (b) qualified residential energy property (such as certain energy-efficient heat pumps, hot water heaters or boilers, and advanced main air circulating fans) on your principal residence (no vacation homes). Expenditures made from subsidized energy financing provided by federal, state, and local government programs can qualify for the credit if they otherwise meet the requirements for those credits. However, there is a $1,500 cap on aggregate credits claimed in 2009 and 2010 for all types of eligible expenditures. In other words, the $1,500 cap applies to the total amount of energy credits claimed in both years combined.
Although the costs of qualifying expenditures tend to be pretty high, if you install solar, wind, geothermal, or fuel cell energy-saving equipment in 2010, you may be able to take advantage of the Residential Energy Efficient Property (REEP) Credit. The REEP credit equals 30% of expenditures to purchase and install: (1) qualified solar water heating equipment, (2) qualified small wind energy equipment, (3) qualified geothermal heat pumps, (4) qualified solar electricity generation equipment, and (5) qualified fuel cell equipment (up to $1,000 per kilowatt hour). Expenditures made from subsidized energy financing provided by federal, state, and local government programs can qualify for the REEP credit if they otherwise meet the requirements for those credits.
The REEP credit only applies to equipment placed in service in your U.S. residence, but it cannot be claimed for equipment used to heat a swimming pool or hot tub. In addition, the credit for fuel cell equipment is only available for your principal residence.
A good place to start your research for these credits is at www.energystar.gov/taxcredits, where you’ll find a table listing requirements for various products. Then, to ensure the product satisfies the required energy-saving conditions for the appropriate credit, be sure to check the product package materials or manufacturer website before making the purchase. According to the IRS, you can rely on the manufacturer’s written certification statement, which is typically included with the product package materials or on the manufacturer’s website. You just need to keep a copy of this certification as part of your tax records.
As you can see, there are significant tax savings to be had from making certain energy-saving expenditures in 2010.