Tax Tips
Go Green But Don’t Rush
Planning to make energy-saving improvements to your home? Wait until 2009 and score a tax credit.
By Mary Beth Franklin, Senior Editor, Kiplinger's Personal Finance
November 26, 2008
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A rocky economy and concerns about the price of heating fuel this winter may have you thinking about cost-saving home improvements, such as outfitting your home with new energy-efficient windows and doors. Great idea, but don’t rush. Although Congress reinstated the credit for energy-efficient home improvements that expired last year, it does not take effect until 2009.
Starting in January, you can claim an energy tax credit for 10% of the cost of installing skylights, windows and outer doors. Ditto for high-energy water heaters, central air conditioners and biomass stoves. The total credit cannot exceed $500. Of that, no more than $150 can be claimed for furnaces and water heaters, $200 for windows and $300 for biomass stoves.
It may also pay to hold off on installing solar water-heating equipment until next year. Taxpayers who install solar panels, solar water-heating equipment or a fuel-cell power system in their homes are eligible for a 30% tax credit up to $2,000 in 2008. But next year that $2,000 ceiling is repealed. Remember, though, that to qualify for the credit, no part of the system can be used to heat a swimming pool or hot tub.
Tax credits are more valuable than a deduction because they reduce your tax bill (or boost your refund) dollar-for-dollar, rather than merely reducing the amount of income that is taxed. And you can claim the credit regardless of your income level.
Reader Comments (1)
Posted by: Bob at 11/26/2008 05:19:17 PM
This tax credit has several shortcomings. Last year I was going to install a high efficiency furnace and air conditioner. One little problem came up. It was not on the approved list for the tax credit. It was only one percent less efficient than the energy star approved models but $500 cheaper. So my dilemma was to save $500 or get the $150 tax credit for 1% better efficiency? If I saved 1% on my $1200/yr. fuel bill,that's only $12. If I put the $500 saved in a CD for 4%, that's $20/yr saved and I still have my $500. Even if fuel prices double it would still be almost 20 years to break even and by then I will probably be buying an even better unit. Check it out ahead of time and crunch the numbers before being suckered into paying an inflated price just to get the approved tax credit model. It may not be worth it.