Considering Stimulus Tax Credit

Contributed by QuestionSense Editors

How has the new Stimulus bill affected the tax credits for energy efficient home improvements?
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On February 17, 2009, President Obama signed the "Stimulus Bill" (The American Recovery and Reinvestment Act of 2009) that made significant changes to the energy efficiency tax credits. These changes apply to products "placed in service" in 2009. The highlights are:

* The tax credits that were previously effective for 2009, have been extended to 2010 as well.
* The tax credit has been raised from 10% to 30%.
* The tax credits that were for a specific dollar amount (ex $300 for a CAC), have been converted to 30% of the cost.
* The maximum credit has been raised from $500 to $1,500 total for the two year period (2009-2010). However, some improvements such as geothermal heat pumps, solar water heaters, and solar panels are not subject to the $1,500 maximum.
* The $200 cap on windows has been removed, but the requirements for windows (after June 1, 2009) has been increased significantly. Not all ENERGY STAR qualified windows will qualify after June 1, 2009.
What products are eligible for a tax credits for energy efficient home improvements
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Tax credits are available at 30% of the cost, up to $1,500 total, in 2009 & 2010 (ONLY for existing homes, NOT new construction, that are your principle residence) for:

· Windows and Doors
· Insulation
· Roofs (Metal and Asphalt)
· HVAC
· Water Heaters (non-solar)
· Biomass Stoves
Tax credits are available at 30% of the cost, with no upper limit, through 2016 (for existing homes & new construction - it does not have to be your principle residence, vacation homes and rentals are eligible) for:
· Geothermal Heat Pumps
· Solar Panels
What's the difference between a tax credit and a tax deduction?
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A tax deduction reduces the amount of income subject to tax. For example, if your taxable income is $25,000 and you have a $500 tax deduction, your taxable income would be reduced to $24,500.

A tax credit reduces the amount of tax you have to pay. For example, if you owe $800 in taxes at the end of the year, and you get a $300 tax credit, then you will only owe $500. If you are getting a refund at the end of the year, you can still most likely collect the entire tax credit, as long as the total amount of income taxes that you have paid throughout the year (check your W2 for this amount) is more than the total amount of tax credits that you are claiming. You generally can't get more money back from the government than you paid in income taxes with the exception being "refundable" tax credits, such as the Earned Income Tax Credit.
What is the maximum tax credit I can get for the energy efficient home improvements?
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Many of the energy efficiency tax credits are limited to $1,500 combined total for 2009 and 2010. The $1,500 maximum tax credit covers insulation, windows & doors, roofs, HVAC, biomass stoves, and non-solar water heaters.

Improvements not affected by the $1,500 cap include:
* geothermal heat pumps
* solar water heaters
* solar energy systems
* small wind energy systems
* fuel cells (up to $500 per .5 kW of power capacity)
What happens to the products that were purchased after January 1, 2009, but before the Stimulus bill passed on February 17, 2009?
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The qualifications in the Stimulus Act were effective on February 17, 2009. The amount of tax credit you can receive was retroactively effective as of January 1, 2009 (for example, windows were increased from "10% up to $200" to "30% up to $1,500") .

So, if a product was installed prior to February 17, 2009, and it met the previous criteria (in effect at the time of installation), you are eligible for the new tax credit amount (in this example for an air conditioner, you'd get the full 30%, up to $1,500 tax credit).

**Note, the new Windows criteria is effective June 1, 2009. All ENERGY STAR windows qualify from January 1 - May 31, 2009
What forms do I need for the energy efficiency tax credits?
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To claim the tax credit for energy efficient products "placed in service" in 2009, you will need to file the 2009 IRS Form 5695 and submit it with your 2009 taxes (by April 15, 2010). Currently, only the 2008 version of IRS Form 5695 is available. The 2009 version will be available late 2009 or early 2010.

Also save your receipts and the Manufacturer's Certification Statement for your records. A Manufacturer’s Certification Statement is a signed statement from the manufacturer certifying that the product or component qualifies for the tax credit. The IRS encourages manufacturers to provide these Certifications on their website to facilitate identification of qualified products.

Please note, not all ENERGY STAR qualified products and homes qualified for a tax credit. For a complete list the products that qualify, see the chart on our tax credits page.
What appliances are covered by the tax credits?
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On February 17, 2009, President Obama signed a stimulus bill (The American Recovery and Reinvestment Act of 2009) that made some significant changes to the energy efficiency tax credits. Tax credits for qualified energy efficient home improvements are available in 2009 and 2010 for 30% of the cost, up to a combined $1,500.
The products that are covered by the tax credit in 2009 & 2010 include:

* Insulation
* Windows (including storm windows)
* Skylights
* Doors (including patio & sliding glass)
* Roofs (metal & asphalt)
* Central air conditioners
* Air source heat pumps
* Geo-thermal heat pumps
* Gas, Oil, or Propane Furnace or Hot Water Boiler
* Advanced Main Air Circulating Fans
* Biomass stoves
* Water Heaters (Gas, Oil or Propane, Electric Heat Pump, and Solar Water Heaters)
* Photovoltaic Systems (solar panels)
* Fuel Cells
* Wind Generators

Products not covered by the tax credit included:

* Refrigerators
* Dishwashers
* Clothes washers
* Room air conditioners
* Ceiling fans
* Programmable thermostats
* Electric storage tank water heaters
* Electric Tankless water heaters