Residential Tax Breaks to Tell Your Clients About
A look at some newly extended credits for energy renovations

by Tracy Ostroff
Contributing Editor

Summary: The emergency economic stabilization act signed by President Bush in 2008 extended through 2009 the 2006 nonbusiness property energy credit that had originally expired at the end of 2007. The stimulus legislation signed by President Obama in February increases those tax credits further and extends the credits through 2010.

Tax credits for windows, doors, insulation, HVAC, and non-solar water heaters, which were available in 2006 and 2007, do not apply to systems installed in 2008, but will apply for qualifying systems installed in 2009 and 2010.

The only energy efficiency improvements that are eligible for a tax credit in 2008 (using IRS Tax Form 5695) are:

• Geothermal heat pumps (30%, up to $2,000)
• Solar water heaters (30%, up to $2,000)
• Solar panels (30%, up to $2,000)
• Small wind energy systems (30%, up to $4,000)
• Fuel cells (30%, up to $1500 per .5 kW of power capacity).

Increases in 25C
The emergency stabilization act of 2008 limited tax credits to 10 percent of the cost of each product installed, up to a lifetime cap of $500 and extended the credits through 2009. The stimulus legislation that became law February 17 of this year raised the tax-credit for qualifying systems to 30 percent and the lifetime cap to $1,500. The credit is also extended through 2010.

Further, tax credits that were previously set at a specific amount have been reset at 30 percent of the product cost. And geothermal heat pumps, solar water heaters, solar panels, and some other systems are not subject to the $1,500 maximum. (Note that installation costs are covered for many qualified energy-saving systems, but not for windows, doors, insulation, and roofs.)