Understanding the energy-efficiency tax credit

April 19, 4:35 PMNorthern Virginia Real Estate ExaminerBrett Widness

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Have seen a lot of fliers pushing the tax credit for improving your home's energy efficiency by replacing your windows or installing a tankless water heater. Up to 30 percent of your costs can be covered or $1,500, whichever is lower.

So, if you were planning on spending up to $4,500 on a water heater, insulation, new windows, or any of the other covered improvements, you can get a tax credit of up to $1,500.

However, according to this Q&A piece on Marketwatch.com, items such as dishwashers, refridgerators or window air conditioning units are generally not covered, even if they are Energy Star certified. You will (hopefully) save money in the long run with lower energy bills, but you will not be eligible for this tax credit.

"Installation costs are covered for some -- but not all -- improvements. For windows, doors, insulation and new roofs, only the cost of materials is eligible for the credit. Installation costs are covered for HVAC systems, standard as well as solar water heaters, solar panels, geothermal heat pumps, wind-energy systems and fuel cells. The credit for HVAC systems and non-solar water heaters is 30% of the cost of the product plus installation costs, up to $1,500. It is the same for solar water heaters, solar panels, wind-energy systems and fuel cells, except that there is no maximum."

Possibly the best news is that the credit is retroactive to January 1st of 2009, so if you already did this work, you should still be eligible for the credit, with proper documentation.

Concievably, you could go back and see if any improvements you made in 2006 or 2007 were eligible for a credit up to $500, and file an amended tax return.

Hope that helps.

For more info, go to energystar.gov/taxcredits.