Home energy tax credits: Are they still available?

Roger Diez | Improvement Center Columnist | January 5, 2015

Tax credits for energy are nothing new. They have been in place since 1916. But unless you were an oil or gas producer, you didn't benefit from incentives until after 1970. The oil embargo and crisis of the early 1970s shifted the tax policy focus to conservation, although the recipients were still primarily large corporations. More recently, tax credits have been available for a variety of both conservation and renewable energy projects for business and residential use. The Energy Policy Tax Incentives Act of 2005 established tax credit amounts, conditions, and expiration years for various provisions of the act.

Expired energy tax credits

Homeowners, for instance, have been able to take advantage of federal tax credits for energy-saving projects since 2005. Since 2009, additional credits were funded as part of the American Recovery and Reinvestment Act, and offered credits of 30 percent of the cost of a project up to $1,500. Covered projects included the following:

  • Insulation
  • Roofing
  • Windows and doors
  • Water heaters
  • Furnaces and air conditioning (HVAC)
  • Biomass stoves

In addition, many state and local governments have also provided tax relief for home renovations that include energy-saving materials.

The new normal

The federal 30 percent credit for the common energy conservation projects listed above was reduced to 10 percent in 2011, and the tax credits expired entirely on January 1, 2012. In their place are incentives available through December 2016 for the following renewable energy projects:

  • Solar, both water heating and photovoltaic
  • Small residential wind turbines
  • Geothermal heat pumps
  • Fuel cells

Solar, wind, and geothermal heat pump installations qualify for a tax credit of 30 percent of the project cost with no upper limit. Both new construction and existing homes are eligible. The primary residence and a second home are eligible for all projects except fuel cells. Fuel cells are eligible for a credit of 30 percent up to $500 per 0.5 KW of power capacity. Rental properties are not eligible. Other conditions regarding the amount of energy generated apply for each type of project. The details of each can be found at EnergyStar.gov. The credit applies to both material and installation costs.

State and local support

Although the federal government has cut back on tax credits for energy conservation projects, many state and local governments still offer incentives. Every state varies, but here are some of the energy-saving projects that may be covered in your locality:

  • Home weatherization
  • Windows, doors, and skylights
  • Appliances and electronics
  • Lighting
  • Water heating
  • Water
  • Solar
  • Heating & Cooling

The incentives for each state and local government entity vary widely. North Carolina State University, with funding from the Department of Energy, has developed the Database of State Incentives for Renewables & Efficiency (DSIRE), which lists tax credits and other incentives for each state. DSIRE is an ongoing project of the North Carolina Solar Center and the Interstate Renewable Energy Council Inc. Although it is government-funded, DSIRE data is unofficial. You should verify the incentives listed with your official state or local agencies.

Other reasons to go green

Aside from tax credits and other government-provided incentives, there are other benefits to making your home more energy-efficient. Items that are no longer eligible for tax credits, like a more efficient furnace or better-insulated doors and windows, can still have a positive impact on your heating and cooling costs. And the projects that are still eligible for tax credits such as solar panels, wind turbines, and geothermal heat pumps not only significantly lower energy costs but, in many cases, can add to your home's resale value.

The future of energy tax credits

Credits for solar and geothermal heat pump installations are due to expire at the end of 2016. However, Congress could extend those expiration dates or even pass new laws with more comprehensive incentives for energy-saving technologies. If you are concerned about conserving energy and saving money, you can get involved with lobbying efforts to increase incentives for renewable energy.