2011 Guide to Renewable Energy and Energy-Efficiency Tax Credits

If you haven’t yet taken advantage, now’s the time: Many tax credits end this December.

| November/December 2011

  • Take advantage of energy tax credits to save hundreds, even thousands, of dollars.

After purchasing a home in chilly Wisconsin, Alex Wells and Curt Bjurlin wanted to amp up its efficiency by installing a wood-burning stove and Energy Star windows. By cashing in on a federal energy-efficiency tax credit, they were able to recoup $1,500 of their initial cost, and got lower utility bills to boot. When Gavin Bourjaily built his 2,050-square-foot ranch in Virginia’s mountainous Shenandoah Valley, he installed a geothermal system for heating and cooling and, after qualifying for the federal renewable-energy tax credit, got 30 percent of the investment paid back by the government. 

Since 2005, the federal government has offered a variety of tax credits to help defray the total cost of residential upgrades that produce years of utility savings but require a large upfront investment. One of the two biggest credits is the energy-efficiency tax credit, which helps pay for improvements to the home shell or for installing energy-efficient heating and cooling systems. This credit is capped at $500 and is set to expire at the end of the year. The other is the renewable-energy tax credit, which covers up to 30 percent of residential alternative-energy systems, has no cap and has been extended through 2016.

The government aids in the cost of these upgrades because it pays off for both the homeowner and the nation’s economy. “Energy efficiency saves money that people can spend on things that are important for their lives, rather than just paying utility bills,” says Ronnie Kweller, director of media relations for the Alliance to Save Energy. “It’s money that helps boost the economy, so it’s a win-win-win for energy and money savings, for the economy and also for the environment.” Boosting home energy efficiency or producing power onsite also helps protect homeowners against volatile energy costs.

Applying for a Credit 

If you install qualifying products before the end of the year, the credit can be applied to your 2011 taxes by filing IRS form 5695 with your taxes. A tax credit is sometimes confused with a deduction, but the two are very different. A deduction lowers your overall taxable income, while a credit is simply paid back to you. “A tax credit is much more valuable than a tax deduction because it is a dollar-for-dollar reduction in taxes owed,” Kweller says. A $500 tax credit, for example, will lower your tax burden by $500.

Products eligible for the energy-efficiency credit must be purchased and installed by December 31, 2011, in order to qualify. Only existing primary residence homes can qualify for the residential energy-efficiency tax credit. The extended renewable-energy credit is a little looser: Both primary and secondary homes qualify, as do both new and existing homes.

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