IRS Wants us to Think Green Refunds

The Internal Revenue Service is reminding homeowners to keep taxes in mind...it could save them alot of money.

Under the new American Recovery and Reinvestment Act (ARRA), making green changes between now and the end of the year can not only lower energy bills, it can save some real money on the 2009 tax bill. And the same will be true in 2010. The legislation provides a lot of new or expanded tax benefits for changes that reduce energy use or create new energy sources and the IRS wants taxpayers to plan ahead and take advantage of these benefits.

Tax credits have had a tendency to come and go depending on the mood of Congress in any given year and the amounts available, while helpful, didn't provide a real incentive to make costly changes. But under the new law, a tax credit of 30 percent of the cost of qualifying improvements is available up to a maximum for years 2009 and 2010 of $1,500. Under the old legislations there were several levels of credit depending on the energy improvement and there was a lifetime cap of $500.

Credits are available for improvements such as adding insulation, replacing windows with energy efficient models and energy-efficient heating and air-conditioning systems.

ARRA also increased the efficiency standards required for many products to be eligible for a credit; however those guidelines have not yet been released. Until they are available later this spring homeowners who are itching to get started on green home improvements are advised to rely on existing manufacturer certification and Energy Star labels when purchasing products. These certifications will be honored by the IRS until the standards are released.

Higher credit limits are also available for qualified residential alternative energy equipment such as solar hot water heaters, geothermal heat pumps, and wind turbines. Taxpayers are now eligible for credits equal to 30 percent of the cost of the qualified product and many of the maximum limits to these credits have been removed. An investment in some of these improvements can be substantial and these more realistic incentives may be the key to getting homeowners to take the plunge.

ARRA offers other credits for automotive related improvements and there is a whole category of benefits available to businesses. For more information see the IRS publication Fact Sheet 2009-10