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Take Advantage of Tax Credits and Cash in on Your Green Home Improvements

Take Advantage of Tax Credits and Cash in on Your Green Home Improvements

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January 21, 2009

There are several simple steps you and every homeowner can take to improve the energy efficiency of your home. Upgrading doors and windows, adding home insulation, and replacing an old water heater are all ways to instantly gain savings in your monthly utility bills.

But thanks to tax credits that reward green behavior, nobody has to shoulder the entire cost of such eco home improvements: In 2008, President Bush approved the Emergency Economic Stabilization Act, which allows you to deduct up to $500 off your tax bill for taking measures to make your home more energy efficient.

What Is a Tax Credit?

Tax credits work a bit like rebates: they're incentives that make buying expensive things more manageable. While you still have to fork out the cash for new windows or doors, when it comes time to pay your taxes, you can subtract a portion of that expense from your year-end tax bill.

As with rebates, you have to do a little work to get the money that's coming to you from tax credits. That means you can't just file a simple tax return. You must file Internal Revenue Service Form 5695 for Residential Energy Efficient Property Credit to take advantage of tax credits. See the Energy Star Web site for a full list of eligible improvements.

If your state offers further tax incentives for making your home more energy efficient, you'll have to fill out additional paperwork. Check the Database of State Incentives for Renewables & Efficiency to learn what tax credits, rebates, and other incentives are available where you live.

Tax Credits for New Construction

If you're building a new home, tax credits for windows and insulation aren't applicable since building codes already require the use of energy efficient products. But you can qualify for up to $2,000 in tax credits to add items including photovoltaic solar panels, solar water heaters, and fuel cell systems to your new home.

The tax credit goes up to $4,000 for homes qualified to add wind power.  There is a $2,000 tax credit available to you if you build a certified energy-efficient home. But you must use an "eligible contractor," in order to qualify. The Energy Star Web site provides a searchable directory.

A $1,000 tax credit is offered to builders of new manufactured homes that provide energy savings of 30 percent or more for heating and cooling, based on standards set by the Environmental Protection Agency and the Energy Star program.

See IRS Form 8908 to take advantage of these new home tax credits.

Green Building Pays in More than One Way

While it takes time and effort, in the end, taking advantage of tax credits and other financial incentives can be well worth the hassle. You not only improve the value of your home by making it more energy efficient, you also see immediate savings in your heating and cooling costs.

Replacing old windows alone can slash your monthly heating and cooling bills by between 10 and 30 percent, according to U.S. Department of Energy.

And let's not forget the feel-good factor.

Sure, you're helping yourself when you make your home more energy efficient. But you're also helping the planet and future generations by living a more sustainable lifestyle--and that's something you can't put a price on.

Sources U.S. Department of Energy, Consumer Energy Tax Incentives: What the Economic Stabilization Bill Means to You Energy Star, Federal Tax Incentives for Energy Efficiency

About the Author: Mary Butler is a Boulder, Colo.-based writer and editor, who spends much of her free time remodeling an old house.

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