TAX NEWS - 2010

Take Advantage of the Energy Efficiency Tax Credit Before Time Runs Out

On December 31, 2010 you run out of time to have certain energy-conserving improvements that may have been made to your home qualify for up to $1,500 in Federal tax credits. Coming out of one of the most expensive and dubiously effective pieces of legislation ever passed, the $787,000,000,000 2009 American Recovery and Reinvestment Act provides some energy efficiency and renewable energy tax credits that you may be able to use.

The only reason I am even writing about this is because they are tax credits, not deductions and tax credits come right off your tax liability bottom line. Nice!

The legislation is a mishmash of "incentives" that ostensibly "stimulates" economic recovery including investment in energy-conserving improvements to your home and investment in renewable energy. There are two main components that qualify for tax credits in the Act: those related to energy efficiency and those related to renewable energy.

Problem is, the way this law is written you get a maximum of $1,500 in tax credits for certain energy-conserving improvements made in 2009 and 2010, but you generally cannot include costs for labor / installation unless you are replacing qualifying mechanical equipment such as a gas furnace. Also, the tax credits for energy efficiency only qualify with your primary residence and only for an existing residence. So for us common folk looking to save some money and reduce our energy costs, the government provides a 30% tax credit on materials (like caulk or insulation) up to $1,500--but nothing on labor.

Now on the other side of the coin, we have the tax credits for renewable energy. Some of the renewable energy technologies allowed under this provision include solar electric generation and solar water heating, electric generating wind turbines, geothermal ground source heat pumps. You know, stuff that's very expensive and has very limited application. I know because I investigated an electric generating wind turbine for our home in northern Michigan and unless we cut down massive amounts of trees or mounted the turbine over 100 feet in the air it would not work. On top of that, if the utility grid shut down, the turbine would not provide electricity to the home unless we had extensive battery packs that powered the home.

But I digress.

The renewable energy tax credit is handled much differently than those for energy efficiency and conservation. Instead of only applying to your primary residence, the renewable energy tax credits can be used on a second or third home or a vacation home. Heck, they even apply to new home construction. That's a 30% tax credit against the cost of materials and installation of renewable energy systems with NO UPPER LIMIT! Also, you have until 2016 to use the tax credit instead of December 31, 2010 as with the energy efficiency credits.

So although I think it is worthwhile to try and get as much of a tax credit possible for energy efficiency improvements such as insulation, weather-stripping, caulking and the like, I am beside myself at the inequity in this law. If you are affluent and can afford wind powered electric turbines and solar panels on multiple homes, then you can deduct 30% of the costs, with no upper limit.

But if you want a tax credit to pay a contractor to insulate or weather strip your home--which we know greatly reduces energy consumption--you're out of luck! No installation labor tax credit for you! It would seem if the object was to "stimulate" the economy and get people to work, you would provide installation labor in the tax credit. Oh well.

So as poorly written as this legislation is, it is still a worthwhile exercise to insulate and weather strip your home or maybe even replace an old furnace and save up to $1,500 in the process.