The main thing: Act fast

By MARA LEMOS STEIN

(See Correction & Amplification below .)

As winter approaches, you may be looking for ways to cut your energy bills. The good news is that the U.S. offers tax credits for many energy-saving home improvements. The bad news: You have to act fast—some of those credits are expiring on Dec. 31. What you need to know:

What improvements are covered by the expiring credits?

Homeowners can get a tax credit for installing certain wood or pellet stoves; energy-efficient furnaces, water heaters and air-conditioning systems; insulated roofs, windows and doors; and wall and ceiling insulation. The tax credit covers 30% of the purchase costs, up to $1,500. (For a full list, check the Energy Star website at www.energystar.gov.)

Is the installation cost covered?

The cost of putting in heating and air-conditioning systems, water heaters and biomass stoves is, but installing new windows, doors, roofs and insulation isn’t.

Can I use the tax credits for improvements in a vacation home?

Sorry, no. The improvements qualify for an existing home that is your primary residence, even if it is a houseboat or mobile home. But rentals, vacation homes and new construction aren’t eligible.

With time short, what improvements make the most sense?

Upgrading your heating and cooling, which can be as much as 50% of the average home’s energy bill. If your furnace or boiler is more than 10 years old, this may be the ideal time to replace it. All improvements must be in place and equipment in service by Dec. 31 to qualify for the tax credits.

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Elwood Smith

What improvements can be done relatively cheaply?

Adding insulation. If you choose to insulate just the area where your family spends most of their waking hours, for instance, the cost will be low but your family will be much more comfortable. And often insulation is a do-it-yourself project, so you save on labor costs.

Am I going to have trouble finding a contractor on short notice?

Not only are contractors available, but many of them are using the expiring tax credits as a marketing tool, according to the National Association of the Remodeling Industry. You can find qualified contractors at the association’s website, www.nari.org. Many of the contractors have the equipment and materials ready to go, and you’ll be helping workers in an industry badly hit by the recession.

Will a new dishwasher get me some tax credits?

Appliances don’t qualify, but appliances carrying the Energy Star seal will help reduce your energy bill. Also, many states and local utilities are offering direct rebates—no need to wait for tax returns—on some appliances. Check www.energysavers.gov to see details of programs in your state.

Might the program be reinstated for future tax years?

Legislation has been introduced to extend the tax credits, but experts say it is unlikely Congress will pass it before the end of the year.

Will I be able to handle this on my tax return without having to call on an expert?

The form is simple. Just make sure you save the manufacturer’s certificate that states the equipment or service is eligible under the program. If not available with the product, the certificates can also be found on the websites of the manufacturers.

I’m subject to the alternative minimum tax. Will I still be able to qualify for this tax credit?

These credits can be used to offset the AMT, says Gary R. Price, tax partner with Sensiba San Filippo LLP, an accounting firm in the San Francisco Bay area.

Are there any tax incentives for rooftop solar-power systems?

Yes, and they are far more generous. Federal tax credits for solar-energy, small residential wind turbines and geothermal pump systems cover 30% of all costs—installation included—with no upper limit. These are good on both primary homes and vacation homes, new construction or otherwise. And they don’t expire until 2016.

—Ms. Lemos Stein is a reporter for Dow Jones VentureWire in New York. She can be reached at mara.lemos-stein@dowjones.com.

Correction & Amplification

Federal energy-efficiency tax credits for home improvements like new insulation and furnaces can’t be used to reduce your tax bill if you’re subject to the alternative minimum tax. This article incorrectly states that the tax credits, which expire Dec. 31, could be used to offset the AMT. But credits for residential renewable-energy projects—involving solar panels or small wind turbines, for instance—can offset the AMT.

By CleanTechies at CleanTechies
Fri Nov 12, 2010 4:30pm EST
by Shari Shapiro

Yesterday the U.S. Department of Housing and Urban Development (HUD) announced a pilot program to finance $25 million in home efficiency upgrade loans: Backed by the Federal Housing Administration (FHA), these new FHA PowerSaver loans will offer homeowners up to $25,000 to make energy-efficient improvements of their choice, including the installation of insulation, duct sealing, doors and windows, HVAC systems, water heaters, solar panels, and geothermal systems.

Under the Pilot Program, HUD, through FHA-approved lenders, will insure loans for homeowners who are seeking to make energy improvements to their homes.

This pilot loan program is interesting in the wake of the Property Assessed Clean Energy (PACE) controversy, wherein property tax-based financing of home efficiency improvements were rejected by Fannie Mae and Freddie Mac, among others. More information on the PACE controversy is available here.

A big issue with the PACE structure was that the PACE loans were superior in priority to the mortgages.

Will the FHA Powersaver loans be subordinated to the mortgages on the homes? The guidance does not say.

THE TAX PICTURE

A recent tax credit lets homeowners looking for a more energy-efficient way to heat and cool their house get a new geothermal heating and cooling system. A onetime tax credit of 30 percent of the total investment is offered to homeowners who install residential ground loop or ground water geothermal heat pumps.

Geothermal typical System

The System

A geothermal home comfort system taps into the abundant source of free solar heat energy stored in the earth and uses a series of pipes (an earth loop) buried in the ground to move that heat into a home during cold weather.

The Tax Break

Through the American Recovery and Reinvestment Act, homeowners who install a geothermal system before Dec. 31, 2016, can take advantage of the federal renewable energy tax credit for the system. Homeowners may also get utility rebates and other tax incentives.

Other Advantages

Even without the tax break, the long-term return on installing such a system can make it worthwhile. The energy source is free and renewable and the average system lasts over 24 years-compared to 15 years for an ordinary system. In fact, the Environmental Protection Agency considers them to be one of the most efficient heating and cooling systems available.

According to the experts at WaterFurnace, most geothermal systems are easy to install in both new and older homes. Once installed, the system requires less maintenance than a conventional heating and cooling system and operates more efficiently, delivering an astounding four units of energy for every one unit of electrical energy used. That translates to a 400 percent efficiency rating and savings up to 70 percent for heating, cooling and hot water costs.

Another plus: A geothermal system uses no fossil fuel and emits no carbon dioxide, carbon monoxide or other greenhouse gases. Homeowners experience added comfort, improved indoor air quality and less noise as they reduce their carbon footprint.

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Thursday, July 1, 2010 6:25 PM EDT

Ed Trzaska of Montgomery

Last fall, my wife and I completed an energy efficiency renovation of our Pike Run townhouse via the state’s Home Performance with Energy Star Program.

The results have been amazing — a 40 percent reduction in our energy consumption and utility bills.

The program started with a comprehensive energy audit of our home. We were very surprised to find out that our biggest problem was improper air sealing and insulation, especially in the attic. This is a common problem with many homes.

Most of the work that we had done focused on this problem, but we also installed a new 98 percent-efficiency furnace and direct-vent water heater. Our home is so much more comfortable now. The few drafty rooms we once had are now perfectly controlled.    Based on the winter months alone, we have already saved about $800 on our utility bills. And the best part of our experience is that we only paid for about 50 percent of the work. The Home Performance program offers very generous rebates and we also took advantage of the $1,500 federal energy efficiency tax credit.

Whenever I speak about the program with my neighbors, I always receive great feedback and interest. It is important for society to reduce energy consumption, and Montgomery should lead the way. I believe that some of the program’s features have changed, but the core format of it remains the same.

Ed Trzaska

Montgomery