You can get a tax credit of 30% of whatever you spend on qualifying alternative-energy home improvements. Keep in mind that a tax credit reduces the money you actually owe, as opposed to a tax deduction, which only reduces the income you’re taxed on.
There are some pretty cool things about the tax credit, one is there no cap: It’s 30% of whatever you spend. Second, it applies to improvements not just to your primary residence but also applies to second homes (but not rentals). Finally, it doesn’t expire until 2016.
But this credit also comes with at least one disadvantage, and it’s a biggie: You’re required to buy things that are less mainstream and often more expensive than an air conditioner. Instead, you’ll be looking at:
- Geothermal heat pumps: A heat pump that uses the ground instead of outside air to provide heating, air conditioning and hot water. Here’s more information from Energy Star.
- Wind turbines: A turbine that converts wind energy into electricity that ties into your house’s electrical system.
- Solar water heaters: A water heater that uses the sun’s energy to heat water. Here are the models that qualify.
- Solar panels or photovoltaic systems: Solar cells that capture the sun’s energy and convert it into electricity.
Even with a fat tax credit, that’s a pretty restrictive list, so just because you can doesn’t mean you should.
The improvement with the highest cost/benefit ratio is probably the solar water heater – they can be had for as little as $4,000 and, as you heard in the video, can shave 20% off your monthly electric bill. On the other end of the spectrum, a photovoltaic system that can power your entire house can easily cost 10 times that amount.
To see what qualifies for tax credits, visit the Energy Star website. There are lots of restrictions on which products qualify, as well as other details you need to know. For example, when it comes to solar water heaters, at least half the energy used to heat your home’s water must be from solar, and the credit doesn’t apply to heating swimming pools or hot tubs.
There are also more conventional products that can earn you smaller credits. Check this page of Energy Star’s website for information on other credits.
Depending on where you live and what you buy, your state, power company and/or the item's manufacturer may offer incentives as well. Dealers should know what’s available in your neighborhood, but here are other places you can check:
- Rebate Finder from Energy Star: Put in your zip code and what you’re buying, and this site will tell you if there are rebates, recycling or sales tax incentives.
- Database of State Incentives for Renewables and Efficiency: See if your state or local utilities are offering financial incentives for specific improvements.
If you’ve been thinking about increasing your energy efficiency or reducing your carbon footprint and electric bill, using your tax refund to fund your project might be a bright idea. It’s a way to get your refund, spend it, earn 30% on it and make every penny back over time.
Happy shopping for next year's tax credit!