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Home » Eco-Friendly Savings, Taxes

2010 IRS Federal Home Energy Tax Credit Guide

Last updated by on 40 Comments

Energy Tax Credit Update: The 2011, 2012, and 2013 energy tax credits have been reduced.

A few weeks ago, my wife and I woke up one morning and the temperature in the house seemed a little cooler than normal. Then I noticed that the furnace was not kicking on at all. We have an ancient furnace (over 20 years old) and I started fearing the worst. If you’ve had this happen to you, you know how scary it is. Other than a vehicle and house (and maybe a coffin), a new furnace might just be the most expensive material purchase many of us buy in our lifetime.

I started calling around to set up a maintenance visit, but in the meantime I started to plan for the worst. I had heard about federal energy tax credits for high efficiency appliances, and was hoping that furnaces were eligible for the tax credit. I was surprised to see a whole lot more than credits for just efficient appliances, and wanted to share it with you. Whether you’re in the market for a new furnace, water heater, roof, insulation, or you want to go ultra-efficient or off grid with solar and geothermal, you’ll want to read on.

How Much is the IRS Federal Energy Tax Credit?

Federal energy tax credits are generally 30% of cost. However, there are maximum credit limits, with three general buckets. By far the most common bucket will be the first, which has a maximum tax credit amount of $1,500.

Energy Tax Credit for Biomass Stoves, Heating, Air Conditioning, Ventilating, Insulation, Roofs, Water Heaters, Windows, and Doors.

  • energy star tax creditTax Credit: 30% of cost
  • Maximum Tax Credit: $1,500
  • Expiration Date: December 31, 2010
  • Restrictions: Home must already be existing and be your principal residence. Rentals not eligible.
  • Installation Costs Applicable Towards Credit? Varies

What’s Covered? And what are the requirements?

  • Biomass Stoves: Must have a thermal efficiency rating of 75% or higher. Installation costs are applicable towards the credit.
  • Heating, Ventilation, Air Conditioning: air circulating fans, air source heat pumps (HSPF ≥ 8.5, EER ≥ 12.5, SEER ≥ 15), central air conditioning (SEER ≥ 16, EER ≥ 13) , water boilers (AFUE > 90), Natural gas or propane furnace (AFUE >95), and oil furnaces (AFUE >90). Installation costs can apply towards the tax credit.
  • Insulation: Bulk insulation products can qualify, such as batts, rolls, blow-in fibers, rigid boards, expanding spray, and pour-in-place. Products that air seal (reduce air leaks) can also qualify, as long as they come with a Manufacturers Certification Statement, including: weather stripping, spray foam in a can, designed to air seal, caulk designed to air seal, house wrap. Note that installation costs (if professionally completed) are not applicable towards the credit.
  • Roofs: Must be an energy star qualified roof. Can be metal or asphalt (with cooling granules). Here’s a list of Energy Star tax credit eligible roofs. Installation costs not applicable.
  • Water Heaters: Gas, oil or propane (Energy Factor ≥ 0.82 OR a thermal efficiency of at least 90%). Also included are electric water heaters with an Energy Factor ≥ 2.0. Installation costs are applicable towards the credit.
  • Windows: Windows, doors, and skylights with U factor <=0.30 and SHGC <=0.30. Also includes storm windows and doors with a U-factor and SHGC of 0.30 or below and meets the IECC. Installation costs are not applicable towards the credit.

Energy Tax Credit for Geothermal Heat Pumps, Small Wind Turbines, Solar Energy Systems, & Fuel Cells

  • Tax Credit: 30% of cost
  • Maximum Tax Credit: No upper limit (except for fuel cells)
  • Expiration Date: December 31, 2016.
  • Restrictions: Existing and new homes are eligible and it could be a first or second home. Rentals do not qualify.
  • Installation Costs Applicable Towards Credit? Yes.

What’s Covered? And what are the requirements?

  • solar tax creditGeothermal Heat Pumps: Must meet the requirements for each version: Closed Loop: EER ≥ 14.1 COP ≥ 3.3, Open Loop: EER ≥ 16.2 COP ≥ 3.6, Direct Expansion: EER ≥ 15, COP ≥ 3.5.
  • Small Wind Turbines: Residential only. Must have a nameplate capacity of no more than 100 kilowatts.
  • Solar: Includes solar water heaters, but at least half of the energy generated by the “qualifying property” must come from the sun. The system must be certified by the Solar Rating and Certification Corporation (SRCC) or a comparable entity endorsed by the government of the state in which the property is installed. Solar panels that provide electricity to the residence are eligible.
  • Fuel Cells: Credit is for 30% of the cost, up to $500 per .5 kW of power capacity. Efficiency of at least 30% and must have a capacity of at least 0.5 kW.

State & Local Energy Tax Credits and Utility Rebate Programs & Home Energy Audits

In addition to the federal tax credits, there are a large number of states and local municipalities that are offering energy tax credits as well. On top of that, many utilities have rebate incentive programs to cover the costs of energy efficient upgrades. A number of utility companies are also offering subsidized home energy audits (which usually carry a hefty price tag of about $300). Energy audits use special cameras to detect where you are losing the most energy from your house or using inefficient appliances. They are a great starting point if you are spending a lot on your energy bills but can’t isolate where the expense is coming from.

If you want to find out more about state and local energy tax credits and utility rebate programs, check out the Database for State Incentives for Renewables & Efficiency, it will do a lot of the research for you.

Are Energy Tax Credits Worth it?

Yes, Yes, Yes!! There is an unbelievable amount of rebates and incentives available right now. So much so, that there really is no excuse to not upgrade your efficiency. In a lot of cases, you’ll be spending less for the efficient versions, and in some cases I’ve heard of people actually spending nothing or making a net income on their upgrades! All this on top of the energy savings that you’ll be enjoying, make it a great time to at least crunch the numbers and see if it makes sense financially.

Energy Tax Credit Discussion:

  • Have you upgraded and received the federal energy tax credit?
  • What about state or local tax credits?
  • Utility rebate programs?
  • Have you installed solar?
  • Share your story!

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40 Comments »
  • BibleDebt says:

    I had an issue with my 20+ year old furnace last year. Fortunately, I was able to save it by replacing the system board inside the furnace by ordering the part on-line. To me it was worth it to take a chance on such an old appliance. The worst thing that could happen is I would have fried everything and had to get a new one. Thanks for the heads up and detail on all the tax credits.

  • Budgeting in the Fun Stuff says:

    We haven’t upgraded anything yet since our house was built in 2004, but I’m very interested in solar power…especially since we live in Houston (tons of sun).

    I’m worried that the cost (even with 30% coming back in credits) will just be too prohibitive, but I will take a look. I will also need to look into how expensive maintenance on solar panels would be since we live in a hurricane area with frequent high winds.

    • Jacob Mintz says:

      Solar power for homes is becoming affordable as solar panels prices drop and as long as the 30% Federal Energy Tax credit exists (until tax year 2016). Enetergy customers can get rebates for solar panel systems at $2.00/watt DC up to $20,000, and the installation is property tax exempted.

      Maintenance is low (only cleaning and removing dust), the panels are bolted to the roof structure (not to the shingles), so if the roof survives the wind so will the panels. I’m not sure about a hurricane though.

    • Roland says:

      A word of warning to anyone who thinks the 30% Federal Credit towards the cost of installing a residential PV system really means that. We did a PV install in 2010 on our home in Illinois, and at the time Illinois offered a 30% rebate, in addition to the federal tax credit. That would make it seem that the homeowner pays 40% of the cost of the system.

      Fast a couple of years. We finally receive the Illinois 30% cost of the project in June 2012. In February 2013 we receive a 1099G from the State of Illinois asserting that the 30% they paid is a taxable grant. We then ask the IRS about this, and their helpful agents claim that the 30% the State paid should have been deducted from the cost of the project BEFORE calculating the 30% Federal Credit.

      I’m not a math major, but what that means in Illinois is that the homeowner pays 49% of the cost, not 40%. The equation (as the IRS and the State of Illinois appear to interpret it) is for project cost X, state pays .3x, feds give you a tax credit of (x – .3x) x .3. Regardless of what the project cost is, it results in the government paying .51x, and the homeowner paying .49X. Not the deal you thought it was.

      It gets even worse. Most people factor in how long it takes to recover their out of pocket cost. Here you would use real costs and actual savings. Using the highest per kwh charge to date and actual PV production, tfor us the pay back period went from 13.65 years under the 60/40 split in costs we thought we were doing, to 21.79 years if the State of Illinois and the IRS view on how the State 30% payment should be treated (as taxable income) is correct.

  • Duane says:

    This is all great…and fine…except that I find it rather misleading on behalf of our federal government and vendors to not clearly state that this is a “conditional” and “non-refundable” tax credit. Unlike child-care credits or other “true” credits, this alleged energy credit is limited to the amount you have paid in federal income taxes within the year you are applying for it. Now…I know several elderly people who pay $0 in Federal Income Taxes…some of them have fallen victim to this alleged credit. They replaced their home furnace with a high efficiency model, expecting to get back up to a 30% credit when filing a tax return. Much to their chagrin, they get $0. These individuals have NO WAY of recapturing their expense!!! They are living on Social Security money!! Some of them have financed a portion of the sale with the understanding they would pay off the debt when they received their refund check!! How sad is that? I am extremely upset with the lack of information and lack of honesty. If it were private industry, I do believe there would be screams of “false and misleading advertising” coming from the very officials that wrote the rules for this alleged energy credit. It is not a credit…it is an income tax refund determined by the purchase of energy equipment. If it was a credit, you would receive it without paying in taxes.

    • Shirley says:

      Duane, I fully agree with you a 100%. I was mislead as well. I was informed when I purchased my boiler that I would receive a $1,500.00 tax credit from the federal government on my 2010 taxes. Well that’s not the case, because I don’t have much of a tax liability I will only get $434.00 back of the $1,500.00 I was told I would get. I am telling you I am going to fight this. I was informed that I should write my local Congressmen. Which in my case it is Charles Schumer. Please pursue this as I feel we were unjustly mislead. We need to stand up for our rights.

    • KFS says:

      I agree that many retailers and merchants are running with this as an advertising gimmick and being very shady when they KNOW the information they are giving may be “best case scenario” rather than a “definite return.”

      I was not aware that there was a 1500 MAX over a two year period. So we put on a new roof in 2009 and thought we could get a credit off the replacement windows in 2010. Looks like I was wrong as the roof in 2009 received a 1500 credit.

      Sure we’re happy with the windows but we didn’t need to bite the bullet and buy them at Christmastime in 2010 had we realized that it really didn’t matter and we weren’t going to get the credit anyway.

      Our bad but very disappointing.

      • Me Too!! says:

        Same thing happended to me today — just learned that even though we installed windows in 2009 (and received our tax credit) — we earn 0 tax credit for the new heating and air system that we rushed to install in Dec — just to beat the deadline to earn the credit.

        Shame on our government for not rewarding families for making the effort to be more energy effient (at the times when we all need it most).

    • D. says:

      Thanks for your excellent post Duane. My Mom expected the full energy credit and will not receive it… even though the “credit” was a large part of her decision to upgrade her home. In her case the contractor misunderstood the nature of the energy credit and therefore misrepresented it, due to the very public promotion of it by the govt. It’s really just a potential refund, not a true credit.

  • Herb says:

    Duane, exactly how I feel about the “Credit”. I went for the first time home buyers credit, which must be repayed. I found this out after the fact. It didn’t help it was for 2008 home buyers. The 2009 credit was a much better deal. Yes, I have been trying to dig up the nuances and unstated subtlies of the energy credit. Dig is the key word. The exact details of the credit and what happens after you claim it are not readily available. Yo anyone claiming any tax “Credit”, do your homework. Get advise from a professional before claiming them. The Recovery act credits are nothing like the standard Earned Income Credit, for example, that we are all used to. As the old saying goes, if it sounds too good to be true……

  • Roland says:

    Some credits are limited to tax owed, and some are further limited to the year in which the improvement happened. However, the 30% credit for solar, wind, geothermal, etc. can result in eliminating all of your tax liabiity in the year installed and whatever is left does carry over. That won’t help someone who already pays no federal income tax, but that person would not very likely be looking to install a PV or other qualifying system because they are generally pretty costly.

    As I write this a PV system it is being installed for our home in Illinois. Between the federal credit and a state rebate program, 60% of the cost (including labor to install) is being paid for by either the federal government or the state. We find that a much more intelligent use of taxpayers dollars (basically our own) than spending it on $600 toilets for the military, or any of the too many to mention stupid programs out there that receive pork money.

    As for maintenance – unless you life in dry arid areas, there is little to none, and even in dusty areas, maintenance consists of washing the dust off the panels periodically. As for high winds, the racking system and panels are rated for 110 mph winds, while the roof on the house they are going on is only rated for 80 mph winds. Not counting the added value to the property (and here the tax man cannot by law tax it any differently than a conventional house), expected pay back of out-of-pocket dollars is around 8 or 9 years, assuming no further electricity rate increases. Here, that is a really stupid assumption as Commonwealth Edison is our supplier and in that 8 or 9 year period, in addition to the 7% increase they just received, you can expect they will be getting at least two or three more rate increases approved. We may not have the most expensive electricity in the country, but Com Ed is sure trying to claim that title and there aren’t too many electric utilities nationwide that they need to overtake to obtain that dubious distinction.

  • Andy says:

    Best explanaton of the credit I have seen so far. I had the furnace issues last winter, but unfortunately the cost of a replacement was still much more than repairing it and the tax deduction. I have heard they may extend and increase this credit next year, so maybe waiting will save me more money.

  • Hoa Isreal says:

    Hi, for me that sounds interesting, who knows what the future will bring… Let´s wait for it…

  • Claudia says:

    I had a bad year, have no income. Will the IRS send me the $1,500 as a refund or will the Dept. of Energy send a check? Or am I unable to use the credit?

    Claudia

    ASAP it is 12/17/10

    • Shirley says:

      Yeah I don’t think so. I think if you have no income which means no tax liability that you won’t get anything.

      • JOHN HELMER says:

        Hi Everyone. We are very dissapointed to hear this energy tax credit is limited to tax due, and if not used would not carry forward. I am not new to preparing tax returns. If this item were sold as a deduction, I would fully understand. On my 1040, I have credits on lines 63 and 65. These items produce a refund even with zero tax liability. Thats how tax credits normally work. We dug deep this year to pay for a new high eff. hvac system, and we were relying on the credit to flow back to us, in spite of an unsucessful year. This is just one more way our government swindles a naive public into loosing.

  • Pam says:

    Claudia,
    NO ONE will send you a check. This is a credit on your tax return, it reduces your taxes owed to the IRS so you don’t get a check for any rebate amount for this credit. The credit is limited to the amount of tax you owe to the IRS in 2010 based on your income and to 30% of the cost of the energy savers here, upto a max of $1500. If you don’t have any income and thus no taxes owed to the IRS in 2010 then you won’t be able to take advantage of this credit.

    • Shirley says:

      Well if you ask me that is BS. Because they never said it was a conditional or non-refundable tax credit. I am writing to my local congressman hopefully to get “the credit” we are supposed to get. If you feel the same way I do then write your local congressman. We have to take a stand.

      • bryan says:

        The very fact that it is a “credit” means you do not get cash from the government just for qualifying for the credit. It means you can use that credit to reduce the money you are taxed on. If you made no money your credit is no good.

        You can’t take a “$10 of $100 coupon” to Target and demand the $10 if you never purchased anything right?

  • Mike Rogers says:

    Note that, the tax credits have been extended through 2011, albeit now at a cap of $500 (and dropped to 10% of cost). Probably not a big motivator for most, and it won’t encourage people who weren’t already planning on improvements to jump in. But it may help some decide to install more efficient products. There is a summary of the new credit, with caps and criteria, at http://greenhomesamerica.com/the-learning-center/government-incentives/42-federal-energy-saving-tax-credit.aspx

    Thanks,
    Mike

  • Arlen says:

    My wife and I have two homes. One in Minnesota and another in Florida. We are both legal, voting residents of Minnesota.

    In 2009, I spent 8 months in Minnesota and 4 months in Florida, while my wife spent 6 months at each location.

    In 2010, we both spent 8 months in Minnesota and 4 months in Florida.

    In 2011, my wife will spend 8 months in Florida, 4 months in Minnesota, and I will spend 5 months in Florida, and 7 months in Minnesota.

    In April of 2010, we replaced the furnace/AC in Florids with a qualify/high efficient unit.

    Can we claim all or part of the federal tax credit??

  • HENRY BELTRAN says:

    I remodeled my house three years ago. I planned for Solar Panels during construction but did not install them until now. I have energy saving windows and doors, a tankless water heater, and fully insullated the house, including under the floor in the crawl space. Do these items qualify for the tax credit items on the 2010 Form 5695, Part 1, items 2a through 2c?

    Thanks for your help.

  • Jason says:

    Hi. If one is not required to file taxes (ie: has not taxable income for 2010) is there any way to take adavantage of the “Energy Star” Residential Energy Efficiency Tax Credit available for new equipment installed in my home during 2010?
    Thanks for any help.

    • Shirley says:

      According to what I know you will not be able to claim the credit, as you do not have taxable income which in turn means no tax liability.

      It’s misrepresentation of what the credit was made out to be. Not one television commercial that was advertised about this credit ever indicated that this was a nonrefundable or conditional tax credit.

      I am trying to fight for what is rightfully ours, but I can’t do it alone. I did write a letter to our Senator, Charles Schumer, which included literature of different websites that I had visited and that had advertised the credit, but did not speak of that it was based on your tax liability.

      I am only one person and the more people speak for themselves the better chance we will have in getting what is ours. So everyone that you know that has come across this same issue and yourself as well please do something about it and write a letter to your local congressman.

      • bryan says:

        Do not rely on television commercials to understand tax code – especially people advertising trying to get you to buy their product!

        Educate yourself by researching. The onus is on you to understand, and a simple Google for “Home Energy Tax Credit” search would have given you all you need.

        Exactly who are you trying to blame for your ignorance?

        • Shirley says:

          We relied on the installer to give us adequate information. It wasn’t until we went to file our taxes when we found out that it was based on our tax liability you moron. So if someone fails to provide us with a piece of information, it is our fault? So I guess the representative from National Fuel that came out to our house as well as the installer are ignorant? No, so keep your smarta** comments to yourself.

          • Practical Guy says:

            An installer is NOT a tax expert, the credit guidelines are available year round on the IRS .gov website.

            You are paying for your laziness.

            Ignorance of the law is not an excuse to be excluded from the law!

  • roy says:

    I am considering a solar aray for a zero metering system which supposedly has a 30% tax credit against 2011 tax liability with no maximum. If this amount is limited to current tax liability will there be a carry forward provision so I can take the remaining credit in furure year? Any help appeciated.

  • KFS says:

    I think we just have to accept that this program was as much about job creation/retention in the industries that serve these upgrades, as it was about any real credit/savings for the end consumer.

    We received some new windows we did need and the window supplier mentioned they had been selling like crazy so there is a silver lining there.

  • Toby says:

    You know, I’m rather disgusted by the people who think that the government did something bad to them because they didn’t do an adequate job of checking out the details of the Energy Credit for themselves. As someone else in this chain mentioned, all it would have taken is to have done a Google search to get all the details about refundable vs. non-refundable credit, the maximum amount of the credit, how even though the credit was available for more than one year the maximum was still going to be $1500, etc. And, though the government isn’t always clear in what it publishes, in this case, the credit was described clearly and succinctly in IRS documents.
    For most people, having the government give you $1500 for something good for you to do isn’t a small amount–but instead of being glad that the government offered the money to us middle class taxpayers rather than just to the rich, everyone is getting their kicks just bashing the government.
    I do think that the companies who misrepresented what was available to you, and how the credit actually worked may have some liability for their misrepresentation and it might be possible for someone to get some money from the supplier of the product(s). Probably, of course, those companies have lots of legalize in their documents that will protect them, but if nothing else, it might be more productive to use the internet and word of mouth to at least let people in your community and elsewhere know who those “bad apples” were who weren’t as clear as they should have been about what was available to you, and thus mislead you. Maybe if people don’t use them for another job and tell them its because they weren’t trustworthy about explaining this credit they won’t do this again. (Though I guess you have to be careful not to get accused of slander–or libel–I never can remember which of those is spoken and which is written.)
    For those of you attacking the government on this, do you really think it’s productive for us as a society to keep attacking whatever the government does, even if it’s something good.

  • Gregg says:

    How very sad that in this day under Obama we, working poor and fixed income folks have no recourse but to pay full price for solar. As usual the rich continue to get corporate welfare from our Feds.

    What stupidity!

    Were drowning in debt, paying more and more for energy! Gee what would have happened if instead of bailing out the top 1% richest of the rich with Trillions of taxpayer dollars………wow what a fantasy to think that there CoUlD be solar panels on EvErY home in the USA

    AND we could be independent from foreign oil and “Clean Coal”, HA what a daydream I’m having!

    Any thoughts as to why the last time this country ACTUALLY HAD an Energy Policy was under Jimmy Carter???

  • Brenda says:

    @Toby

    “all it would have taken is to have done a Google search to get all the details about refundable vs. non-refundable credit”

    I’m pretty sure I’m not the only one who went to irs.gov to read about the tax credit, and I’m sure I’m not the only one who sleuthed around a bit to see if there were any “catches” to this credit.

    I’m not anti-government or even anti-tax, but the type of credit should be clearly explained for those of who aren’t tax pros.

  • Dan says:

    I too got caught in this little known trap about the Energy Tax Credit actually being a “refund” against taxes as opposed to a true credit. So while I was expecting to get a $1500 tax credit, I was only eligible to receive $153 of the $1500. I should have done the furnace in 2009. Shame on me for not checking. But shame on the seven, yes seven, different contracters who I considered and not a single one pointed this out to me. Welcome to the masses of the dupped and uninformed I guess.

  • John says:

    Folks, I stumbled upon this forum while researching something related. I’m a solar installer. I am ALWAYS very careful to tell my customers that the Fed tax credit for solar is just that… a credit against taxes. By definition of a credit, if you don’t pay taxes you can’t take advantage of a credit. I’m not sure how else you can define the word ‘credit’. Also, the instructions for IRS Residential Energy Credit form 5965 clearly state on the last line that “If you cannot use all of the credit because of the tax liability limit (line 26 is less than line 23), you can carry the unused portion of the credit to 2011″. I’m struggling to sympathize with those of you that think you got hoodwinked into something. You, and only you, are responsible for understanding your tax situation. Since when is a contractor or a TV add responsible for giving tax advice?

    And Gregg, please spare me the heartache. The working poor and fixed income people have to pay full price for solar? If they pay any federal tax at all then they don’t pay full price for solar. And if they don’t pay Fed tax, exactly how are those of us who do pay Fed tax supposed to feel sorry for them on this issue?

  • thinking of solar says:

    For those of you paying no federal taxes, you may be able to get a lease on at least Solar installations. The leasing company can claim tax credit and your personal tax situation then does not matter

  • Ramona says:

    I bought windows in 2010 and could not use the credit because my income was to low and I shelled out $1100 for 3 new windows and I just found out I could not recieve the credit based on my income so I got no income credit reduction for new windows is that right?

  • Carlos Higgins says:

    Energy Credit ‘Traps’. This note was in another email sent to this forum: “The tax credits have been extended through 2011, albeit now with a cap of $500 (and dropped to 10% of cost).” Do any of you know when this life-time cap was imposed? If that was new just this last year, the cap was akin to ‘ex post facto’ inasmuch as it was apparently extended ‘backwards’ for a period of years. CarlosTX@sbcglobal.net

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