What tax credits are available for making homes more energy efficient?

To encourage energy savings, the American Recovery and Reinvestment Act of 2009 expanded the tax credits related to energy-efficient home improvements.

For 2009 and 2010, you may be able to claim a tax credit equal to 30% of the cost of energy-efficient property that you install in your principal residence. Qualified products can include new windows, doors (exterior and storm), insulation, roofing, HVAC systems, nonsolar water heaters, and biomass stoves (e.g., those that use plant-derived fuels, including wood and wood pellets) for your existing principal residence. (Note that installation costs are covered for HVAC, biomass stoves, and nonsolar water heaters, but not for the other products listed here.) A total combined credit cap of $1,500 applies to all 2009 and 2010 improvements.

For property placed in service in 2009 through 2016, you may be able to claim a separate tax credit for 30% of the cost of buying and installing qualified geothermal heat pumps, solar panels, solar water heaters (pool or hot tub heaters do not qualify), small wind energy systems, and fuel cell power systems (limited to $500 per 0.5kW of power capacity); generally, no cap applies to these improvements. This tax credit is available for products installed in both new and existing homes. With the exception of fuel cell systems (which, to qualify, must be used in a home that is or will be your principal residence), these products may be used in a second or vacation home as well.

Only products that meet very high energy efficiency standards qualify, so you’ll need to carefully check the manufacturer’s certification. It will tell you whether or not the product qualifies for a tax credit. Keep a copy of the statement, and receipts, for your tax records. A tax professional can give you more information about these tax credits. You can also visit the Energy Star website, www.energystar.gov, to find out more about energy-efficiency standards and products.

I’m buying my first home, but I already own an investment property. Will I qualify for the first-time homebuyer’s tax credit?

Even though you already own an investment property, you may be able to qualify for the first-time homebuyer’s credit that was included in the American Recovery and Reinvestment Act of 2009. For the purposes of qualifying for the credit, a first-time homebuyer is defined as someone who has not owned a principal residence during the three-year period prior to the home’s purchase. Your investment property is not considered to be your principal residence, so you may still be eligible for the first-time homebuyer’s credit, assuming you meet other requirements.

One requirement is that you must purchase a home on or after January 1 and before December 1, 2009. You must also meet certain income limits. To qualify for the full credit, which is equal to 10% of the home’s purchase price (up to a maximum credit of $8,000), your modified adjusted gross income must be no greater than $75,000 if you’re single, or $150,000 if you’re married. The credit is reduced if your income exceeds these amounts, and is eliminated if your modified adjusted gross income exceeds $95,000 ($170,000 if you’re married filing jointly).

If you’re married, and your spouse has owned a principal residence within the past three years even if you have not, neither of you will qualify for the credit. But if you’re single, and are buying a home with someone else who has owned a principal residence within the last three years, you may still qualify, even though the other buyer will not.

Note that if the home you’re buying ceases to be the principal residence of you and your spouse within 36 months of the purchase date, you’ll have to pay back the credit. For more details, visit the IRS website, www.irs.gov.

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