Tax Edge

By Robert Steere, Toolkit Staff Writer

It's November now. We've enjoyed the beauty of the dazzling fall colors, but now the leaves are brown and dropping steadily. The onset of winter could arrive before we know it, in the wink of an eye. Therefore, you may want to think seriously about getting started on those winterizing projects you've been planning (or is the right word "putting-off") for months. Uncle Sam will be glad to help you with the costs of energy efficient home improvements. In fact, the IRS just issued a list of things you should know about its "nonbusiness energy property credit." Homeowners who make energy efficient home improvements this year can realize bigger tax savings next April 15 with this tax credit.

The nonbusiness energy property credit was enhanced earlier in the year by Congress so that homeowners can claim a tax credit for 30 percent of the costs of all qualifying improvements made during 2009 and 2010 to their principal residence located in the United States. The maximum allowable credit was increased to $1,500, too, so the credit can be claimed relative to as much as $5,000 of improvements over the combined two-year period. A homeowner must claim the tax credit on the tax return for the year in which the improvements are made and placed in service, and must attach Form 5695, Residential Energy Efficient Property Credit, to the tax return.

The credit applies to improvements such as adding insulation, energy-efficient exterior windows and energy-efficient heating and air conditioning systems. To qualify as energy-efficient, products generally must meet new, higher standards. Manufacturers must certify that their products meet new standards. They must provide the certification in writing so that it is available for the taxpayer to read and copy. This can be done with a statement on the packaging of the product or in a printable format on the manufacturer's website.

Keep in mind that you may also be eligible for a "residential energy efficient property credit," another nonrefundable energy tax credit. It can help you pay for solar electric equipment, solar hot water heaters, geothermal heat pumps, wind turbines and fuel cells you install in your home. New changes in the law remove the previous limitations on the amount of credit allowed on all qualifying property except fuel cells. You can claim a tax credit equal to 30 percent of the cost of qualifying property. The credit also applies to labor costs for onsite preparation, assembly and installation of qualifying property.

For more information on these and other key tax provisions that can help save you money come April 15, visit the official IRS website.

Related items:

Posted November 5, 2009.