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Federal Tax Credits for Energy Efficiency

written by: randalarias•edited by: Donna Cosmato•updated: 7/6/2011

Did you know you can claim 30% of the cost of energy saving home improvements? What about the credit for hybrid electric cars that can be as high as $7,500? Read this article to find out all the federal tax credits for energy efficient improvements.

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    Introduction

    Many tax credits have been created by the stimulus plans of 2008 and 2009, including the first time home buyer's credit. However, most people aren't aware that a host of tax credits have been created for people that upgrade the energy efficiency of their home, build a new energy saving home, or purchase a new hybrid electric vehicle. Commercial buildings that create a certain amount of energy efficiency are even allowed to deduct a set amount per square foot of their building.

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    Credit for Home Improvements

    The tax credit for energy efficient improvements made to a home are a set 30% of the cost, up to a total maximum of $1,500 for the following products: windows (including storm windows and skylights), doors (including storm doors), insulation, roofs (asphalt and metal), HVAC, non-solar water heaters, and biomass stoves. Each of these must meet certain guidelines set forth by the government. A summary of specifications is available at www.energystar.gov. This means that all the projects you complete can give you a total credit of $1,500; this is not an amount that applies to each project. There are also a few other rules that apply to home improvements. They must be made on a taxpayer's primary residence, and they must be ready for use sometime between January 1, 2009 and December 31, 2010. You must also obtain a Manufacturer Certification Statement, which is a signed statement from the manufacturer that the product qualifies for the tax credit. Other improves also earn a tax credit of 30% of the cost with no limit. These products are the following: solar panels, solar water heaters, geothermal heat pumps, small wind energy systems, and fuel cells.

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    Tax Credits for New Homes

    If you build a new home you qualify for a different energy tax credit. To begin with, you may not claim a tax credit for windows, doors, insulation, roofing, HVACs, non-solar water heaters, and biomass stoves. Instead, you can claim credit for energy efficient items including geothermal heat pumps, solar panels, solar water heaters, small wind energy systems, and fuel cells. Again, for product specifications, visit www.energystar.gov.

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    Tax Credits for cars

    There are two credits available for energy efficient vehicles. The first is for plug-in hybrid electric vehicles. The tax credit for these vehicles is between $2,500-$7,500 for the first 250,000 vehicles sold after January 1, 2009, after which the credit will be phased out. The second credit is given for the purchase of hybrid gas-electric, diesel, alternative-fuel, battery-electric, and fuel cell vehicles. The credit for these vehicles is based on a formula that is determined by many things, including vehicle weight and fuel economy. The ta credit for these vehicles only applies to the first 60,000 sold. As of March 2009, GM, Ford, and Nissan are the only manufacturers that still qualify.

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    Credits for Home Builders

    Under the stimulus plan, home builders are eligible for a $2,000 credit if they build a home that saves 50% or more on heating and cooling above the 2004 IECC, provided one fifth of the savings comes from building envelope improvements. Mobile home builders that save at least 30% on heating and cooling with one third of the savings comes from building envelope improvements are eligible for a $1,000 credit. Contractors and producers are required to file a form 8908 to receive the credit.

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    Deductions for Commercial Buildings

    Owners of commercial buildings are eligible for federal tax deductions for energy efficiency. A deduction of up to $1.80 is provided for buildings that save 50% more on heating and cooling than set forth by ASHRAE Standard 90.1-2001. Partial deductions of $0.60 are also available.

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    Conclusion

    With so many credits available to taxpayers today, now is the perfect time to improve the energy efficiency of your home. Not only will you be saving money in the long run with windows that seal air flow better and solar panels that cut out the need for the electric company, you'll also receive 30% back as a tax credit this year. It's even a great time to invest in a hybrid vehicle as gas prices continue to rise. If you're interested in any of these credits, consult the Energy Star website for more information as well as product suggestions.

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    Resources

    "Federal Tax Credits for Energy Efficiency." EnergyStar.gov. 6 March 2009. 29 March 2009. http://www.energystar.gov/index.cfm?c=products.pr_tax_credits