A big slice of the cost of owning a home is what you spend on energy. Average annual energy spending in the U.S. adds up to $1,472 for electricity, $416 for natural gas and $113 for fuel oil and other fuels, according to the U.S. Bureau of Labor Statistics Consumer Expenditure Survey. (Your own expenses will vary depending on utility costs in your area, the size of your home and how heavily you use energy.)
The federal government encourages energy-efficient home improvements by offering tax credits for certain upgrades. For existing primary residences, putting in energy-efficient windows and doors, furnaces, air conditioners, insulation, water heaters, roofs and some other items qualifies you to take a tax credit of either 10% of the cost or specific amounts ranging from $50 to $300, depending on the improvement. The credit is currently set to expire at the end of 2021, and a lifetime cap of $500 applies to the total value of credits you can get in all tax years after 2005. (A credit is a dollar-for-dollar reduction of your tax bill.)
You can snag a more lucrative tax credit for certain renewable-energy systems—including solar panels, small wind turbines and geothermal heat pumps—on new and existing residences, including second homes. Congress recently extended the tax break; now you can get a 26% credit for projects placed in service by the end of 2022, or 22% for projects placed in service in 2023.
Check for state and local incentives and rebates, too. Massachusetts homeowners, for example, can take a tax credit of $1,000 or 15% of the cost (whichever is smaller) for installing solar- or wind-energy systems. Some utility companies offer rebates for buying energy-efficient appliances and equipment or making other improvements. To see incentives available in your area, enter your zip code at www.dsireusa.org (opens in new tab) and www.energystar.gov/rebate-finder (opens in new tab).
We’ve listed several upgrades that qualify for a federal tax credit and can pay off over time in energy savings (as well as a few that don’t come with a tax break from Uncle Sam but still trim your energy bills; see below). Cost estimates and tax credit amounts include installation unless otherwise noted.
Before you get started, consider investing a few hundred dollars in a home energy audit, performed by a pro who will identify problem areas in your house and suggest fixes. With a blower door test, for example, a powerful fan set in an exterior door frame lowers air pressure inside the house, causing higher-pressure air outside to stream in through the house’s openings so the auditor can spot leaks. Auditors may also use infrared cameras, thermometers and furnace-efficiency meters to detect areas that need improvement. You can find a certified auditor in your area through the Residential Energy Services Network at www.hersindex.com (opens in new tab). Your utility company may offer energy assessments or rebates for having one performed.
Insulation and air sealing
Cost: From a few hundred dollars for basic, do-it-yourself weather stripping and caulking to a few thousand dollars or more to upgrade insulation in your home.
Savings: An average 15% on heating and cooling costs—or an average 11% on total energy costs—for those who air seal their houses and add insulation in attics and crawl spaces or basements, according to the Environmental Protection Agency.
Tax credit: 10% of the cost of bulk insulation and air-sealing materials (installation costs are not eligible).
Ensuring that the inside of your home is protected from exterior cold air in the winter and warm air in the summer is one of the most cost-effective ways to save energy. That’s especially true in colder climates, although homes everywhere benefit from better insulation. “The more a house exchanges air with the outdoors, the less efficient it is,” says John Hensley, quality assurance director for consulting and inspection company Building Performance Solutions. Sealing and insulating your home may even allow you to invest in a smaller heating and air conditioning system when you upgrade it.
Adding weather stripping and caulk around window and door trims that are leaking air is a relatively easy and low-cost place to start. When it comes to larger sealing and insulation projects—for which you’ll likely want help from a contractor—focusing on the attic, which tends to have greater exposure to heat, cold and moisture than other parts of the house, often makes sense. Basements and crawl spaces are prime places to beef up insulation, too. And when you replace your roof and siding, you may want to add insulation over the roof sheathing or to your walls, says Jennifer Amann, buildings program director of the American Council for an Energy-Efficient Economy.
Heating and air conditioning
Cost: About $5,000 to $12,000 to upgrade both heating and cooling systems, depending on the size and efficiency of the units.
Savings: Replacing a heat pump or air conditioner that is more than 10 years old with a high-efficiency unit can save up to 20% on heating and cooling costs, according to Energy Star. Certified gas furnaces are up to 15% more energy-efficient than standard models and can save up to $85 a year in energy costs.
Tax credit: Up to $300 for qualifying central air conditioners and air-source heat pumps; up to $150 for qualifying gas, oil or propane furnaces and boilers.
If your heat pump or air conditioner is more than 10 years old, or if your furnace or boiler is more than 15 years old, it may be coming due for a replacement. Along with choosing an energy-efficient unit, “one of the most important things is to make sure a contractor comes out and does a full assessment of your current equipment needs rather than just saying that you have a 4-ton system and need to replace it with a 4-ton system,” says Amann. To start, it’s possible that your current unit was not sized or installed properly. A professional should ensure that your new system is the appropriate size for the ductwork and refrigerant lines connected to it, says Hensley. And if you’ve made other upgrades that enhance your home’s efficiency, such as putting in new windows or adding insulation, that may affect the size of the equipment you need, too.
A professional can help guide you through the best options to update your heating and cooling system and whether switching from one type to another makes sense. You might want to consider replacing both your air conditioning and heating system with an air-source heat pump, which can produce significant energy savings. (We’re not talking about underground, geothermal heat pumps, which can cost $10,000 or more with installation.) Air-source heat pumps use the surrounding air to heat and cool your home, so they rely on electricity to move heat rather than to generate it, making them highly energy-efficient. Historically, such heat pumps have been best suited to warm and moderate climates. But thanks to advances in the technology, they’re becoming a more feasible option in areas where temperatures frequently dip below freezing. When an air-source heat pump replaces heating and cooling units in the northeast and mid-Atlantic regions, annual savings average $459 compared with electric resistance heaters and $948 compared with oil systems, according to Northeast Energy Efficiency Partnerships.
Cost: Replacing all of the windows in your home is one of the most expensive improvements on our list, but the savings on your energy bills and increased comfort make it worth serious consideration. Double-hung replacement windows with frames can range from $400 to $1,600 or more per window (including installation), depending on the brand and whether you choose vinyl or wood. Vinyl windows cost less and require less maintenance, and the frames can be filled with insulating foam.
Savings: Replacing single-pane windows with Energy Star–certified windows can save you from about $100 to nearly $600 in household energy bills a year for an average-size home, according to estimates by D&R International, an environmental consulting firm.
Tax credit: 10% of the cost of any Energy Star–certified windows (not including installation), up to $200. Energy Star skylights and doors are also eligible for a 10% credit.
Look for the Energy Star label, which means that the products meet the energy-saving criteria set by the Environmental Protection Agency. In the case of windows and doors, the key performance parameters are U-factor and Solar Heat Gain Coefficient (SHGC), according to Enesta Jones, senior press officer for the EPA. U-factor is a measure of heat flow through the product (insulating power), and SHGC is a measure of the amount of heat from the sun that will pass through a window. Skylights, or tubular daylighting devices, which gather sunlight at the roof and transmit it down into the home through a diffusing lens, use the same technology as energy-efficient windows, and they naturally light your home.
All Energy Star windows, doors and skylights save energy (and help the environment), but the standards vary by region. Windows that meet the Energy Star specification in the southern U.S. generally cost less than windows that meet the standard in the northern U.S., which require more-expensive glass. To find your zone, go to www.energystar.gov (opens in new tab) and search for “climate zone.”
Cost: From about $1,000 to $2,000 to install a tank heater; up to $5,000 for a tankless heater.
Savings: An Energy Star gas storage water heater uses 10% less energy than a standard model, and a family of four can save hundreds of dollars in energy costs over its lifetime, according to Energy Star. With an electric heat pump water heater, a family of four can save as much as $3,750.
Tax credit: Up to $300 for qualifying gas, oil, propane or electric heat pump water heaters.
Heating water uses a significant amount of energy in many homes—an average 12% of residential energy consumption, according to Energy Star. In most climates, it’s the second-highest component of residential energy bills, after heating and air conditioning, and in mild climates it may be the biggest energy user, says Amann.
New gas water heaters are considerably more efficient than past versions and may save you about $25 per month when you replace an older model, says Hensley. And tankless water heaters are worth a look, although their up-front costs are higher than tank heaters. They heat water on demand instead of regularly warming it in a tank, which means they can be about 24% to 34% more efficient than conventional tank heaters, according to the U.S. Department of Energy.
You may see substantial energy savings by switching to a heat pump for water heating. “If you’re in a home with an electric resistance water heater, in almost all situations a heat pump water heater will be a beneficial investment for you,” says Amann. They typically cost at least $1,200 without installation, compared with as little as a few hundred dollars for a standard electric heater. But they use about one-third of the electricity, she says. Because a heat pump uses the air surrounding it to heat water, you can’t put it in a tight space, such as a small closet. But it should be a viable option in most homes.
Cost: About $120 to $150 or more per 100 square feet for asphalt shingles. Metal roofing may cost $200 to $900 per 100 square feet. With installation, total costs may run $5,000 to $15,000 or more.
Savings: About 7% to 15% of total cooling costs, according to the Cool Roof Rating Council.
Tax credit: 10% of the cost of certified metal and asphalt roofs with pigmented coatings or cooling granules to reduce heat gain (installation costs aren’t eligible).
“Cool roofs” reflect sunlight more effectively than standard roofs, cutting down on heat absorption and potentially lowering surface temperatures by 50 degrees or more. Energy Star–certified roof products may reduce peak cooling demand by 10% to 15% in the hottest months. On the downside, cool roofs can increase heating costs in the winter, although “this annual heating penalty is usually small compared with the annual cooling savings, because roofs in cold climates tend to receive much less sunlight in winter than in summer,” according to the Cool Roof Rating Council. Using cool materials often makes the most economic sense if you have a flat roof because of how heat is distributed underneath it in your home.
White roofs are the most reflective, providing the greatest potential for energy savings. But you may be able to find qualifying materials in darker, more traditional colors. Asphalt roofs cost less than metal roofs, but metal is more durable, potentially lasting for decades longer than asphalt roofs.
Cost: An average $2.81 per watt, according to EnergySage. Many homeowners install a system of about 8 kilowatts, for a total of $22,480 before tax credits and other incentives.
Savings: As much as 100% of the cost of your electric bills. Recouping the cost of installing solar power in savings on your energy bills typically takes anywhere from five to 12 years.
Tax credit: 26% for solar projects placed in service by the end of 2022 or 22% for projects placed in service in 2023.
Harnessing the sun’s rays to power your home has become a more appealing prospect thanks to falling prices for solar panels (opens in new tab), as well as tax credits and other breaks that take a significant chunk out of the bill. The 26% federal tax credit would cut the $22,480 average price for installing an 8-kilowatt system down to $16,635, and your state, locality or utility company may offer more incentives.
In deciding whether and how to install solar panels, you have a few major considerations, says Vikram Aggarwal, CEO and founder of EnergySage, an online marketplace where homeowners can collect bids from solar-energy installers. First, you need somewhere to put the panels—most homeowners install them on their roof, but those with plenty of land may put them in their backyard. If you want to place panels on your roof, it must have enough space to accommodate them and receive adequate sunlight, with minimal blockage from trees or buildings. Panels are typically installed on the south-facing side of a roof.
You also have to evaluate the size of the system you’ll need, based on your electricity consumption. Generally, you can get by with a smaller system in a sunny climate than you can for a similar home in areas that receive less sunlight. EnergySage has a calculator (opens in new tab) to help you judge how large of a system you may need and how much you could save by installing solar panels.
Overall costs will typically be lowest and savings highest with a solar-power system you purchase outright. With a lease, you host a solar-power system and send the solar company a fixed monthly payment. With a power purchase agreement (PPA), you pay the company for the electricity that the system you host generates. A lease or PPA may have no up-front cost for you, but you don’t get the tax credit because you don’t own the system.
Alternatively, you can finance a solar system with a loan. Tapping a home-equity line of credit (recent average rate for a $30,000 line of credit: 4.73%, according to Bankrate (opens in new tab)) is often a good option. Or you may be able to obtain a solar loan through your installer or from a bank or credit union. Online lender LightStream (opens in new tab) recently offered rates ranging from 3.99% to 14.49% for a term of 24 to 36 months for a solar loan of $10,000 to $24,999, or 6.99% to 16.29% for a term of 73 months to 84 months.
Solar renewable-energy certificates, or SRECs, allow homeowners in some areas—including Maryland, Ohio, Pennsylvania and Washington, D.C.—to sell the energy their solar power systems generate to utility companies. Each 1,000 kilowatt-hours of electricity your system produces is one SREC, and each SREC may be worth anywhere from about $10 or $20 up to a few hundred dollars.
Is a wind turbine right for you?
The potential for wind power isn’t limited to the massive wind farms scattered across the U.S. plains or the clusters of windmills in farmers’ fields. In fact, the federal government offers a tax credit of 26% through 2022 (dropping to 22% in 2023) for those who install a small wind turbine at their residence. But unless you have a lot of land, consistent winds and significant cash to invest, a wind-energy system probably doesn’t make sense.
Generally, you need at least one to two acres of clear land to put up a wind turbine. It should be placed upwind of buildings and trees and stand at least 30 feet higher than any object within 300 feet of it, according to the U.S. Department of Energy. Many towers are at least 80 to 100 feet tall. That may be a problem if your community has zoning requirements that restrict the height of structures on residential properties. Your region should have average wind speeds of at least 10 miles per hour to power a turbine.
For a turbine that can produce 10 kilowatts of power—which could supply enough energy for a 2,500-square-foot house that uses about 2,000 kilowatts of electricity per month—you may pay upward of $50,000 before tax breaks or rebates.
Other ways to trim your energy bill
These environmentally friendly products don’t qualify for a federal tax break, but check EnergyStar.gov (opens in new tab) or your utility provider for rebates.
Light bulbs. Although compact fluorescent lights (CFLs) and light-emitting diodes (LEDs) can initially cost a little more than standard light bulbs—typically about $2 more for each CFL and $4 more for LEDs—they ultimately save you money because you spend less on your energy bill. They also last longer than incandescent light bulbs. The Department of Energy says that households that replace incandescent bulbs in the five most-used fixtures with Energy Star bulbs can save $75 annually.
Energy Star appliances. Energy Star–rated appliances are another great way to reduce your energy bill. For example, using soil sensors, improved water filtration and more-efficient jets, the latest Energy Star dishwashers (ranging from about $700 to $2,000) will save, on average, 3,870 gallons of water over their lifetime. A list of the most-efficient Energy Star appliances is at http://energystar.gov/most-efficient (opens in new tab).
Power strips. Even electronics that are turned off use electricity when they are plugged in, typically accounting for as much as 10% of your electric bill, according to the National Renewable Energy Laboratory. A power strip ($10 to $15) lets you easily turn off appliances plugged into it, reducing “vampire” energy usage. Smart power strips, such as timer power strips or motion-sensor power strips, can automatically turn off outlets.
Programmable thermostat. Smart thermostats, such as the Google Nest and Ecobee, which cost about $130 to $250 (check your energy company for rebates), let you control and schedule your heating and cooling settings using voice control or via an app. Many smart thermostats also come with motion sensors to help optimize your energy use. If you don’t want to tie your thermostat to your Wi-Fi (some homeowners have reported being hacked), you can also realize savings with a simple programmable model (about $20 to $150).
Home energy monitor. To get a bead on your home’s energy use, try a home energy monitor. It will provide details on your energy usage and recommendations on how to save. Some energy monitors, such as the Sense energy monitor, also allow you to monitor energy production of solar panels. Cost: $299.
Lisa has spent more than15 years with Kiplinger’s Personal Finance and heads up the magazine’s annual rankings of the best banks, best rewards credit cards, and financial-services firms with the best customer service. She reports on a variety of other topics, too, from retirement to health care to money concerns for millennials. She has shared her expertise as a guest on the Today Show, CNN, Fox, NPR, Cheddar and many other media outlets around the nation. Lisa graduated from Ball State University and received the school’s “Graduate of the Last Decade” award in 2014. A military spouse, she has moved around the U.S. and currently lives in the Philadelphia area with her husband and two sons.
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