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Home Energy Improvements Pay Off at Tax Time

If you made improvements last year to your home to make it more energy-efficient, Uncle Sam wants to help — but not as much as he previously did.

For the 2011 tax year, the nonbusiness energy property credit is worth a maximum of $500. That’s just a third of the credit that was available the prior tax year.

Also, claiming the tax credit got more difficult. It’s once again parceled out in varying amounts for different types of energy-efficient home improvements.

Eligible home-energy tax credits in 2011

Product category Tax credit amount

Windows, doors and skylight 10% of the cost, up to $500, but windows are capped at $200.

Insulation 10% of the cost, up to $500.

Roofing, metal and asphalt 10% of the cost, up to $500.

Biomass stoves Systems that burn biomass fuel to heat a home or heat water, up to $300.

HVAC Advanced main air circulating fan, up to $50.

Central A/C and air source heat pump, up to $500.

Gas, oil, propane furnace or water boiler, up to $150.

Water heaters Gas, oil, propane water heater, up to $300.

Electric heat pump water heater, up to $300.

Finally, the $500 is a lifetime maximum credit amount for changes to your primary residence. If you’ve already claimed that much for home energy upgrades in prior tax years, you’re out of luck. You can’t claim more on your 2011 return.

Other requirements: The improvements must be to the property you use as your principal residence. The energy upgrades also must be made to an existing home, not an energy-efficient one you built.

The improvements must have been completed by Dec. 31, 2011. If work was still going on in January on your heating system, for example, you can’t claim it.

Get a “Manufacturer Certification Statement” detailing the energy efficiency of the improvement. This is for your records only, in case the Internal Revenue Service later questions your claim.

Installation costs of insulation, windows, doors, skylights or roofs do not count toward calculating your credit. Get an itemized bill that breaks out these costs from that of the product so you’ll know how much to claim. You can, however, include installation charges for conventional water heaters and air-conditioning and heating systems.

And remember that this home-energy tax credit is nonrefundable. That means you can use the amount to help reduce or even zero out any tax bill, but if you have excess credit left over, you won’t get it back as a tax refund.

Bigger Improvements, Bigger Tax Break

If you opted last year to make more dramatic energy changes to your home, you might be able to claim a larger tax credit.

The residential energy efficient property credit offers homeowners a credit of up to 30% of the cost for the installation of alternative-energy equipment in their homes.

This credit applies to eligible solar water heaters, solar electricity equipment, fuel cell plans, qualified small wind energy property and qualified geothermal heat pumps.

Fuel cells must be installed in your primary residence to qualify for this credit. However, the other systems can be placed in vacation or second homes as well and still qualify for this credit.

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