Tax Credit for Energy-Efficient Home Improvements

published 29 January 2013

Did the fiscal cliff law extend the tax credits for energy-efficient home improvements for 2013?

Yes it did. The law, which Congress passed on New Year’s Day, revived the tax credit for both 2012 and 2013. If you made any eligible improvements in 2012 -- after the credit expired -- dig up the receipts before you file your taxes for the year because you may get a tax break after all. And keep these rules in mind when planning home improvements for 2013:

You can receive up to $500 in total tax credits for eligible home improvements you’ve made since 2006 (including a $200 limit for windows). If you claimed the full credit for home improvements since then, you won’t be able to take the break again.

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If you are eligible, the tax break applies to 10% of the purchase price (not installation costs) of certain insulation materials, energy-efficient windows, external doors and skylights, and metal roofs with pigmented coating or asphalt roofs with cooling granules that meet Energy Star requirements (see the Environmental Protection Agency’s Energy Star Web site for details). You can count both materials and labor costs for certain central air conditioners, biomass stoves, electric heat pumps or electric heat pump water heaters that meet specific energy-efficient guidelines -- up to a maximum of $300 for each. You can count up to $150 for an eligible natural gas, propane or oil furnace or hot water boiler.

The items must meet specific energy-efficient requirements to qualify. See the Alliance to Save Energy tax credit page and the Tax Incentives Assistance Project for details. Keep your receipts and manufacturer’s certification of eligibility.

Some alternative-energy improvements qualify for larger tax credits. For improvements made by December 31, 2016, you can take a credit worth 30% of the cost of buying and installing certain alternative energy equipment, such as geothermal heat pumps, solar water heaters, solar panels, fuel cells and small wind-energy systems.

For more information about these tax breaks, see IRS Form 5695 Residential Energy Credits.

If you don’t qualify for the federal incentives, see if you can get any state breaks. For links to details about programs in each state, see the American Council for an Energy-Efficient Economy site. For a list of several state and utility programs, see the Tax Incentives Assistance Project.

As the "Ask Kim" columnist for Kiplinger's Personal Finance, Lankford receives hundreds of personal finance questions from readers every month. She is the author of Rescue Your Financial Life (McGraw-Hill, 2003), The Insurance Maze: How You Can Save Money on Insurance -- and Still Get the Coverage You Need (Kaplan, 2006), Kiplinger's Ask Kim for Money Smart Solutions (Kaplan, 2007) and The Kiplinger/BBB Personal Finance Guide for Military Families. She is frequently featured as a financial expert on television and radio, including NBC's Today Show, CNN, CNBC and National Public Radio.