Congress passed substantial tax credits in 2009 and 2010 for specific home improvement projects that increase energy efficiency, allowing consumers to get credits of 30% on up to $5000 spent on qualifying purchases.  If you didn't take advantage of the first round of credits, you have one more shot through the end of 2011, though percent is lower (10%) and there are limits to the maximum credit allowed on each type of improvement, with a total cap of $500.  There are also additional tax incentives on specific expenditures that will not expire until 2016—but more on that later.

Here's a rundown of the product categories for which a tax credit is offered through 2011.  Remember that only some products in each category, usually among the most efficient, qualify.

  • Biomass Stove (such as pellet stoves).  Cap:  $300.  Labor allowed:  Yes.
  • Central Air Conditioning.  Cap:  $300.  Labor allowed:  Yes.
  • Electric Heat Pump.  Cap:  $300.  Labor allowed:  Yes.
  • Furnaces or Boiler.  Cap:  $150.  Labor allowed:  Yes.
  • Advanced Main Circulating Fan.  Cap:  $50.  Labor allowed:  No, but the credit is 30%.
  • Roofing.  Cap: $500.  Labor allowed:  No.
  • Gas, Oil, or Propane Water Heater.  Cap:  $300.  Labor allowed:  Yes.
  • Electric Heat Pump Water Heater.  Cap:  $300.  Labor allowed:  Yes.
  • Windows.  Cap: $200.  Labor allowed:  No.
  • Doors.  Cap:  $500.  Labor allowed:  No.
  • Insulation.  Cap:  $500.  Labor allowed:  No.

If you’ve been considering one of these home improvements, it may be worth your while to make sure you get the improvement completed before the end of 2011 in order to claim the tax credit.  But the tax credit on its own does not justify these expenditures. However, each homeowner's situation is different, and the return on investment in energy savings combined with the tax credit may be enough to justify an early upgrade in some cases.  The best return on investment is likely the addition of extra insulation, the category in which most owners of older homes are all but guaranteed to come out ahead.

Other tax credits are not set to expire until 2016.  Unlike the credits that end in 2011, new homes are eligible for these credits. However, most of these purchases are personal statements, not investments.

  • Geothermal Heat Pump.  Credit:  30%, uncapped.  Good investment:  For many homeowners who do not have natural gas, yes.
  • Solar Energy System.  Credit:  30%, uncapped.  Good investment:  No.
  • Wind Energy Systems:  Credit:  30%, uncapped.  Good investment:  No.

If you are going to make an eligible purchase soon, do it this year, and don't leave money on the table!

This has been a guest post by Genevieve from Bowie, MD
Find out more about the KCL Contributor Network!

Tax Credit for Green Improvements