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Energy Tax Incentives

Energy Tax Incentives On October 3, 2008, President Bush signed into law the "Emergency Economic Stabilization Act of 2008," also known as the Bailout Bill or Economic Stimulus Act. Not just for big business, this bill is helping homeowners by extending tax credits for energy efficient home improvements (windows, doors, roofs, insulation, HVAC, and non-solar water heaters). Tax credits for these residential products, which had expired at the end of 2007, will now be available for improvements made during 2009. Unfortunately, improvements made during 2008 are not eligible for a tax credit.

About Tax Credits

A tax credit is generally more valuable than an equivalent tax deduction because a tax credit reduces tax dollar-for-dollar, while a deduction only removes a percentage of the tax that is owed. Consumers can itemize purchases on their federal income tax form, which will lower the total amount of tax they owe the government.

In addition to federal tax incentives, some consumers will also be eligible for utility or state rebates, as well as state tax incentives for energy-efficient homes, vehicles and equipment. Each state's energy office web site may have more information on specific state tax information.

Federal Tax Credit for ENERGY STAR® products

Consumers who purchase and install specific ENERGY STAR® products, such as energy-efficient windows, skylights, insulation, doors, roofs, and heating and cooling equipment in the home can receive a tax credit of up to $500 for improvements "placed in service" starting January 1, 2009 through December 31, 2009. The ENERGY STAR® website has a complete summary of energy efficiency tax credits available to consumers.

Residential Renewable Energy Tax Credits

Consumers who install solar electric systems can receive a 30% tax credit for systems placed in service from January 1, 2006 through December 31, 2016; the previous tax credit cap of $2,000 no longer applies. In addition, consumers who install small wind systems can receive a tax credit up to $4,000.

Geothermal Tax Credits

An exciting new tax credit is now available for homeowners who install geothermal heating and cooling systems through the Energy Improvement and Extension Act of 2008 (H.R. 1424). H.R. 1424 offers a one-time tax credit of 30% of the total investment (maximum of $2,000 for a single residence) for all residential ground loop or ground water geothermal heat pump installations.

To qualify, the systems must meet or exceed ENERGY STAR® requirements and be installed after December 31, 2007. Owners can file for the credit by completing the Renewable Energy Credits subsection on their tax return forms for 2008. For taxpayers that are subject to the Alternative Minimum Tax, they can claim the credit on their taxes for the following year. No proof of purchase will be required; however, in case of an audit, owners are encouraged to keep a detailed invoice of their purchase on file. The contractor who sold and installed the product should list the purchase as a "Geothermal Heat Pump" on the invoice and that it "Exceeds requirements of Energy Star program currently in effect".

The tax credit is available from October 3, 2008 through December 31, 2016. You can visit DSIRE (Database of State Incentives for Renewables & Efficiency) at to find additional tax incentives that may be available in your state.

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