Save Money and Energy with New Tax Credits

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New tax credits mean more money back for people who purchase solar panels, wind turbines, woodstoves, energy efficient windows and more.

Good news! Renewable energy systems just got a little more affordable. Thanks to federal tax credits that will go into effect in January 2009, U.S. homeowners can get money back if they purchase wind turbines or solar panels next year. There are tax credits for energy efficiency, too — including projects such as adding more insulation to your home, or buying energy-efficient windows.

All this is good news for the planet, because it encourages renewable energy and reduces the use of polluting fossil fuels. It’s also good news for your wallet, because over time, these types of energy upgrades can save you a lot of money.

How do the savings add up? 

Whether you’re buying a wind turbine or new windows, most home energy upgrades require spending money now to save money later through reduced energy bills. Some of these projects are big investments, costing thousands or even tens of thousands of dollars.

How it all pencils out will depend on the details of your project, but with the new federal tax credits you can count on getting some money back quickly. The tax credits for energy efficiency cover up to 10 percent of many home improvements, up to a total of about $500. Even better, the new tax credits cover 30 percent of the cost of most new renewable energy systems — which can add up to thousands of dollars. For example, the maximum tax credit for installing a wind turbine is $4,000.

(Ed. Note: The economic stimulus bill passed in February of 2009 made some of these credits even better. The increased credits cover 30 percent of the cost of energy efficiency improvements, up to a total of $1,500. Read more details here.)

Does any of this sound familiar? 

No, it’s not déjà vu — you probably have heard all of this before. A similar group of tax credits went into effect in 2006. (You can read our earlier articles about those tax credits here and here.) But most homeowner incentives for energy efficiency expired at the end of 2007, and the tax credits for installing solar energy systems were due to expire at the end of 2008.

Then in October, these new tax credits passed as part of the economic bailout package. So now the tax credits for efficiency are back, the solar tax credits have been extended, and in a few cases, these incentives have been expanded. They all go into effect Jan. 1, 2009.

What exactly is covered? 

For a more complete summary of the new energy incentives, this list of tax credits on the Energy Star Web site is a good place to start. It has more details, and even links to the tax forms you’ll need. But here’s a general idea of what’s included:

  • You can get a total of $500 per taxpayer for making home improvements to increase energy efficiency. Improvements that qualify include installing new windows, additional insulation, and more energy-efficient water heaters and furnaces. (Ed. Note: in February of 2009, this amount was increased to $1,500.)
  • The tax credits for installing solar panels were extended. That means home solar-electric systems qualify for tax credits, as do solar water heaters. Both qualify for 30 percent of the cost of the project. (Solar water heating is capped at a $2,000 credit; solar-electric systems are not capped.)
  • Now more types of renewable energy systems qualify for tax credits, including wind turbines (up to $4,000). Tax credits are also available for home fuel cells (30 percent of system costs), geothermal heat pumps (up to $2,000), and biomass stoves, such as woodstoves or pellet stoves ($300).
  • There’s a new tax credit for plug-in hybrids ($2,500 to $7,500) although it gets phased out as more models of these cars are sold. Also, an earlier tax credit for gasoline-electric hybrids is still in effect. Toyota and Honda vehicles no longer qualify because of the number of those models that have been sold, but tax credits are still available for Ford, GM and Nissan hybrid vehicles.

So what else do I need to know? 

Before you invest in any of these projects you’ll want to read all the fine print. Many of these projects have restrictions, for example, eligible replacement windows must be Energy Star rated.

Also remember that you may qualify for additional state or local incentives. You can find out more about what’s available by visiting the Database of State Incentives for Renewables and Efficiency.

Finally, don’t despair if you look at the numbers and decide you don’t have the money to invest in energy improvements right now. There are lots of different ways to lower your energy bills including inexpensive and DIY options. A good place to start is this article from Gary Reysa, Eight Easy Projects for Instant Energy Savings

Have you taken advantage of tax credits for energy improvements? Will you consider doing so with the new tax credits? Share your thoughts by leaving a comment below.

Megan E. Phelps is a freelance writer based in Kansas. She enjoys reading and writing about all things related to sustainable living including homesteading skills, green building and renewable energy. You can find her on .

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