With holiday parties, gift shopping and New Year’s Eve right around the corner, the last thing on your mind this month is your 2011 tax returns. But the next two weeks may be your last chance to get a tax break for replacing your furnace or insulating your attic: Up to $500 worth of federal tax credits for home energy efficiency improvements are set to expire Dec. 31, and Congress may not extend them for next year.
“The 2012 outlook is bleak for renewal of the homeowner tax credits but, as always, rosy for saving money and increasing indoor comfort with energy efficiency,” said Lowell Ungar, policy director at advocacy group Alliance to Save Energy.
Here’s a guide to the home energy upgrades that are eligible for tax credits until the end of the year:
1. Windows, doors and skylights
If you install energy-efficient doors and skylights in your home by Dec. 31, you can receive tax credits for 10 percent of the cost of the project, up to $500. New windows are also eligible for a 10 percent tax credit, but this incentive is capped at $200.
A tax credit is generally more lucrative than a tax deduction: A deduction removes a percentage of the taxes owed, while a credit reduces your taxes dollar-for-dollar.
You don’t need to replace all the windows, doors and skylights in your home to qualify for this tax credit, and, in fact, the new product doesn’t even have to be a replacement: You can install an energy-efficient window in an addition to the house, for example. However, the windows, doors and skylights must be certified by the U.S. EPA.’s Energy Star program, and the credit only covers the cost of the equipment – not the installation costs.
2. Insulation and air sealing
Retrofits that seal home air leaks, including insulating, weather stripping and caulking, are also eligible for a tax credit of 10 percent of the project cost, up to $500.
Like the credit for windows and doors, the incentive for home sealing projects doesn’t apply to the installation costs.
Installing the insulation or weather stripping yourself? You can still take advantage of the tax credit; the incentive doesn’t require a specific contractor to carry out the work.
Replacing your current roof with an Energy Star-certified metal or asphalt roof can keep your home cooler during the summer months, reflecting the sun’s rays and reducing your need to run the air conditioner. These roofs also qualify for the tax credit of 10 percent of the project cost, not including installation costs, up to $500.
4. Heating and cooling equipment
From air conditioning units to biomass stoves, there are tax credits available for a variety of appliances that heat and cool your home or warm up your water.
You can receive a $50 tax credit for purchasing an air circulating fan, which blows heated air from your furnace through the duct system, as long as the fan uses no more than 2 percent of the furnace’s total energy.
Ninety-five-percent efficient furnaces and hot water boilers – powered by natural gas, propane or oil – are eligible for a $150 tax credit.
And there are $300 tax credits available for a host of other efficient equipment: biomass stoves, central air conditioning units, electric heat pump water heaters, electric heat pumps and natural gas, propane or oil water heaters. These appliances must have specific energy efficiency ratings to qualify for the tax credit; the Energy Star website recommends asking your contractor to provide you with the product’s Manufacturer’s Certification Statement to verify eligibility.
Other eligibility requirements
To cash in on these tax credits, you’ll need to make sure the qualifying energy efficient equipment is placed in service – that is, purchased and installed – by Dec. 31. You also must own the home where these upgrades are taking place, and it has to be your primary residence; new homes and rental properties do not qualify.
Note that there is a $500 lifetime limit for energy efficiency tax credits, so if you received over $500 in these tax credits from 2006-2010, you are not eligible for any more credits on your next tax return.
Finally, make sure to hold on to your receipts: You won’t need to submit them with your taxes, but keep them in your records in case of an audit. Visit Energy Star’s website to find eligible products and tax filing instructions.