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Plan Well, Retire Well

Saving and investing your money

Tax Credits on Home Energy Improvements

Everyone is talking about energy use and saving money with home energy improvements. People are buzzing about white roofs in the New York Times, By Degrees: White Roofs Catch On as Energy Cost Cutters, to tax credits in the The American Recovery and Reinvestment Act (ARRA).

I like the tax credit because it helps save money in two ways: first, you can save money for home energy improvements by receiving the tax credit and second, you will save money in energy costs once you've made these home improvements.

Remember, a tax credit helps you on your tax bill more than a tax deduction. When you receive a tax credit, the amount is subtracted from the amount of tax you owe. (In contrast, a tax deduction is deducted from your income before you calculate the tax you owe.)

The new law increases the energy tax credit for homeowners who make energy efficient improvements to their existing homes. The new law increases the credit rate to 30 percent of the cost of all qualifying improvements, and raises the maximum credit limit to $1,500 for improvements made to your home between January 1, 2009 and December 31, 2010.

Be sure to consult a tax professional and read the IRS fact sheet 2009-10 about the Residential Energy Property Credit to be sure your improvements qualify before planning to use this tax credit.

Which home improvements will qualify for this tax credit? Home improvements such as the cost of insulation, energy-efficient exterior windows, and energy-efficient heating and air conditioning systems qualify. Installation doesn't qualify. For a list of qualified improvements, visit the Energy Star website.

How can you benefit from this tax credit? For example, new ENERGY STAR qualified windows can help reduce your energy bill up to 15 percent. Now, with the tax credit you can reduce the cost of installing new windows. If you have noticed drafts in the winter, or one of your rooms with many windows feels especially warm in the summer, then these are good clues that your home might benefit from new Energy Star qualified windows.

For other ways to save on home improvement costs, also at the website is a "rebate finder" webpage. You can enter your zip code and find out about other rebates and credits for making home energy improvements.

Now may be a good time for making home energy improvements. I know I'm planning to investigate some home energy improvements that we need to do while I can take advantage of this tax credit. What about you?

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