Two Energy Credits To Trim 2010 Taxes

Still smarting from your 2009 taxes? Start whittling the bill for next April.

A good place to begin: two federal tax credits for homeowners who want to save energy, one of which expires at the end of this year. The credits have appeal both for true green diehards and those who are staying put due to housing market doldrums.

The credits took effect in their current form in February 2009. Both offer dollar-for-dollar write-offs against taxes, not just a deduction from income. And unlike many tax benefits, there are no income limits on who can use them.

The smaller benefit, known as the Residential Energy Property Credit, will appeal to a broader swath of taxpayers. It applies to 30% of the cost of retrofitting an existing home to save energy, up to $1,500. That means you have to spend $5,000 to receive the maximum credit. This benefit expires at the end of 2010, and amounts claimed in 2009 count toward the $5,000 total.

Items that qualify include insulation, windows, doors, roofing, hot water heaters and air-conditioning systems. Not included: ceiling fans or window air-conditioning units. Installation costs are permitted for some items but not others (see chart below). The Internal Revenue Service recently said that qualified items installed in an addition to an existing house also are eligible.

The other credit, known as the Residential Energy Efficiency Property Credit, is far more generous but typically requires greater expense and commitment to green living. It is for 30% of the total cost of items such as solar panels, windmills and geothermal heat pumps, and the credit amount is unlimited. It expires at the end of 2016.

Comprehensive information about eligibility is available on the National Association of Home Builders Web site and from the IRS. Retailers like Home Depot and Lowe's also provide useful guides. For a listing of separate state and local energy tax incentives, see www.dsireusa.org.

via WSJ