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Uncle Sam wants you to save energy and he is putting his money where his mouth is. The American Recovery and Reinvestment Act of 2009 includes tax credits for making your home more energy efficient. The credits cover 30% of projects finished in 2009 and 2010 with a up to $1500 per year for most projects. The downside is they don’t include installation costs for insulation, sealing air leaks, windows, dors and roofs. Solar, wind and geothermal projects qualify for up to 30% of their cost even if the 30% is more than $1500.

Unlike tax deductions, tax credits directly reduce the amount of tax you owe. If the project involves renewable energy (solar, wind, geothermal), the cap is waived and the credit can be carried over to future years. I you are subject to the Alternative minimum tax, you might want to get your projects done in 2009 because the tax credits will be limited by the AMT in 2010 unless congress changes the law. To claim energy efficiency credits, you will need to file IRS FORM 5695 with your taxes for the year which the job was finished. Be sure to keep all manufacturer paperwork such as the Manufacturer’s Certification Statement as well as all receipts and itemized bills.
Federal energy tax credits do not cover appliances, programmable thermostats, and room air conditioners but state governments as well as utility companies often offer rebates on such energy efficient models. Click Here for qualifying energy efficient improvements.